BlackBerry is scheduled to report its Q2 2015 earnings on Friday, September 26. The company has been restructuring its operations over the last year by downsizing its workforce, subcontracting parts of its hardware business and divesting real estate. While these moves have had a positive effect on the company, helping to narrow its adjusted losses and improve its liquidity position, we believe that the company could be running out of inefficiencies and costs to eliminate, meaning that its eventual turnaround and earnings growth will have to be aided by bolstering its revenues and driving the sales of its software and services business. BlackBerry's revenues fell by around 66% year-over-year to about $966 million during Q1 2015, largely due to an 82% decline in hardware sales and a declining user base for its BlackBerry service offerings. In this note, we take a look at the key factors that we will be watching when the company reports earnings.
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Trefis has a $8.80 price estimate for BlackBerry, which is about 20% below the current market price.
BES Subscriber Trends
BlackBerry has been shifting its focus from hardware to enterprise mobility-related software and services. The software and services business accounted for over 60% of the company’s quarterly revenues during Q1 and we estimate that the division accounts for over 40% of the company’s value. BlackBerry has been counting on the loyalty of its user base of government institutions and corporations to drive the business, but the subscriber base has been dwindling, falling to an estimated 50 million users as of Q1. While the company has been taking steps to stem the decline and reverse the trend, we have some concerns that this could come at the expense of near-term revenues. For instance, the company is trying to attract more customers to its BES 10 platform through its EZ Pass program, which allows organizations running BES 5 or competing Mobile Device Management platforms to switch to the BES 10 offering for free. The company intends to monetize these users by eventually charging them for tech support and by encouraging them to upgrade to more premium versions of the service that offer enhanced security features. The company noted that the EZ Pass program had added roughly 1.2 million licenses for the last quarter, with close to 10% of the licensees trading in from competing platforms. We will be watching the company’s subscriber trends and its ability to convert free licensees into higher value customers going forward.
BlackBerry Messenger MAU Growth
The use of mobile messaging applications has been growing rapidly, driven by higher smartphone penetration and the availability of affordable data plans in emerging markets. BlackBerry has been looking to revitalize its BBM messaging service, opening it up to rival platforms such as Android and iOS. While the cross platform offering was off to a strong start when it debuted last year, with its monthly active user base growing by around 20 million within a few weeks of the launch, growth has slowed sharply with MAUs remaining relatively flat at around 85 million users over the last two quarters. However, the company expects this to improve to around 100 million with the introduction of the Windows Phone version of the application. [2] Considering that company is targeting revenues of roughly $100 million from BBM by FY 2016 – banking on its paid BBM Protected offering and advertising on BBM channels – scaling up its active user base could prove important.
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Notes:
- BlackBerry Reports 2015 Fiscal First Quarter GAAP Profitability, BlackBerry, June 2014 [↩]
- BlackBerry?s CEO John Chen on Q1 2015 Results ? Earnings Call Transcript, Seeking Alpha, June 2014 [↩]
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