Wall Street Insiders See Something Big Coming for BlackBerry Stock

BlackBerry Stock
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BlackBerry Is for Real

BlackBerry Ltd (NASDAQ:BBRY) CEO John Chen’s Herculean efforts to save Sybase from oblivion in 2012—after turning the floundering company around and selling it for billions of dollars—is folklore.

Now a growing number of retail and institutional investors believe that Chen can do the same for BlackBerry, resuscitating it from its near-death situation to remake it as a viable technology player.

Since adopting BlackBerry back in 2013, Chen has shifted the focus of the company from hardware to software, and it’s working according to plan.

BBRY stock surged 17% on Thursday after delivering an encore performance in its fiscal second quarter. That news helped remind investors that the turnaround was in place.

If you bought BBRY stock at the beginning of the year, the advance of 56% has easily outperformed the NASDAQ, and even the 32% move by Apple Inc. (NASDAQ:AAPL).

BBRY stock chart

Chart courtesy of StockCharts.com

The Shift to Software Is Working for BBRY Stock

While Chen still can’t let go of the BlackBerry smartphone, the dramatic shift from hardware to software, enterprise, and licensing is paying off for investors.

Maybe BlackBerry smartphones will eventually become relics worthy of the Smithsonian, but, for now, they’re still around, accounting for a mere $16.0 million, or 6.72% of fiscal second-quarter revenues. That’s a massive decline from $106.0 million in the same quarter a year earlier.

Impressive was the major gains in the non-hardware business, in which enterprise software and services generated 38.23% of FYQ2 revenues as shown in the table below.

  2017 FYQ2 2016 FYQ2
Enterprise Software and Services $91.0 Million $84.0 Million
BlackBerry Technology Solutions $38.0 Million $38.0 Million
Licensing, IP and Other $56.0 Million $16.0 Million
Handheld Devices $16.0 million $105.0 Million
SAF $37.0 Million $91.0 Million

(Source: “BlackBerry Reports Record Software and Services Revenue in Fiscal 2018 Second Quarter,” MarketWired, September 28, 2017.)

Based on the numbers, it’s probably safe to say that Chen isn’t coming even close to the six million smartphone unit sales annually he had previously suggested for breakeven.

The report didn’t disclose the number of BlackBerry smartphones sold, but, based on the $16.0-million number, I’m confident it wasn’t even close to Chen’s expectations. No wonder Chen didn’t discuss the smartphone unit, instead focusing on the company’s “complete transformation to a software company.”

Now, if only Chen can dissolve the smartphone business and walk away.

Analyst Take: 

As BlackBerry moves forward, the company will have to continue to deliver innovation in the software and enterprise segments.

The Internet of Things (IoT) is a frontier that BlackBerry wants to dive deeper into. Armed with about $2.5 billion in cash, Chen has the money and time to achieve his objective.

And while Wall Street is not entirely convinced, I expect more will jump on the BlackBerry bandwagon, which could drive BBRY stock much higher.