BlackBerry, the company and the stock
BlackBerry Ltd (NYSE:BB) has transformed itself from a hardware company to a software one. Though it was one of the first players that entered the smartphone market, it could not cope up with the competition from the likes of Apple (NYSE:NASDAQ:AAPL) and Samsung (KS:005930).
After John Chen became the CEO of BlackBerry in 2013, he had the vision to make the company profitable while growing the revenues. He successfully managed to achieve it in the subsequent years as the company focused on developing its software business.
Software and services segment now accounts for more than 80% of BlackBerry’s revenues, with the remaining revenues coming from its legacy business of handheld devices and service access fees. Both these businesses will further play a small role in the future.
BlackBerry’s stock has been range-bound in the last one year and is currently trading at $10.29 at the time of writing. The stock underwent a significant decline after BlackBerry’s earnings were announced on June 22. Although BlackBerry’s software and services revenues increased by 14% in FY Q1 2019, investors were disappointed with the FY 2019 revenue guidance. BlackBerry expects only 8% to 10% growth in software and services revenues in FY 2019.
Long-term drivers of the company
Although I expect the BlackBerry’s stock to be range-bound for a few more months, the stock looks good from a long-term point of view. I tried to list down some of the long-term growth drivers for the company here:
Financials: Although BlackBerry expects nominal revenue growth for FY 2019, the increase in deferred revenue looks promising. BlackBerry mentioned that it had $277 million in deferred revenue in FY Q1 2019 compared to $195 million in the year-ago quarter. The growing contribution from software and services business means the gross margins for the company increased from 63.8% in FY Q1 2018 to 75.6% in FY Q1 2019. BlackBerry expects gross margins to further increase to 80%-85% in FY 2019.
QNX software: During the last earnings call, BlackBerry’s management mentioned that QNX software is a part of 120 million cars now, and this installed base has doubled in the previous three years. Early this year, BlackBerry inked a deal with Baidu Inc (NASDAQ:BIDU) to develop self-driving vehicle technology. The company also forged a licensing agreement with Jaguar Land Rover. BlackBerry’s bet on fast-growing markets such as autonomous cars and Internet of Things bodes well for its future.
Licensing deals with smartphone makers: This business for BlackBerry looks promising as it continues to forge licensing deals with hardware vendors to develop smartphones. It has inked these deals with some partners such as TCL, Optiemus Infracom, Punkt and Bullitt Group. TCL developed the BlackBerry Key2 device, while Optiemus developed and marketed the Evolve and Evolve X smartphones.