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BlackBerry turns bearish on missing Q1 2018 rev. estimates

Enterprise software company BlackBerry Limited (NASDAQ: BBRY) reported a swing to profit in the fiscal 2018 first-quarter, compared to a net loss in the similar period last year. The first-quarter results also beats analysts’ estimates. However, the stock sank more than 10% last week to close at $9.71. We anticipate further downside in the stock of BlackBerry due to the facts given below.

The Waterloo, Ontario-based company reported a $165 million decline in the first-quarter revenue to $235 million, from $400 million in the similar period of fiscal 2017.

The non-GAAP revenue during the recent quarter was $244 million, down from $424 million in the similar quarter last year, and well below the Wall Street’s expectations of $262.8 million.

BlackBerry

The net income for the quarter ended May 2017 was $671 million or $1.26 per share, compared to a net loss of $670 million or $1.28 per share in the quarter ended May 2016. Excluding charges, the Q1 2018 non-GAAP net income was $10 million or $0.02 per share, compared with a non-GAAP net loss of $1 million or break-even per share in Q1 2017, and above analysts’ expectations of a break-even per share.

During the recent quarter, the company received $940 million payment from the US chipmaker Qualcomm Inc., on the basis of an outcome of an arbitration proceeding.

Both companies had approached an arbitrator to settle a dispute over a licensing deal, which involves regular payments to Qualcomm by BlackBerry. The arbitrator decided that BlackBerry had paid overpaid royalty fees to Qualcomm during the period between 2010 and 2015. The payment from Qualcomm enabled the company to return to profit.

The number of orders received from enterprise customers decreased to 3,000 in the quarter, from more than 3,500 in the previous quarter.

BlackBerry, which is known for its iconic mobile phones, is now a software company promoting products such as QNX automobile platform and cybersecurity shields. Last year, BlackBerry announced that it would spend about $75 million over the next few years to develop a self-driving car hub. BlackBerry is trying to fuel growth through its software offerings for healthcare and automotive industry. In this regard, the company has strengthened its software portfolio through several acquisitions.

BlackBerry also maintained its outlook for fiscal 2018 and stated that it anticipates to turn profitable in fiscal 2018 on a non-GAAP basis. The company also hopes to generate positive free cash flow in FY18, excluding the benefit of payment from Qualcomm. However, analysts expect the company to post a loss of $0.02 per share on revenues of $248 million in the current quarter. Thus, considering the sharp decline in revenue and enterprise orders, we expect the stock to remain range bound with bearish bias in the current quarter.

Technically, the stock has broken below its 50-day moving average. Furthermore, the historic price chart indicates resistance at 10.65. The weak momentum is also indicated by the negative reading of the MACD histogram. Thus, we expect the stock of BlackBerry to move downwards.

Blackberry Stock Price: June 27th 2017

Blackberry Stock Price: June 27th 2017

We are planning to capitalize on the downtrend by investing in a put option valid for a period of one week. To minimize risk, we would pick the option only when the stock trades near $10.50 in the NASDAQ.


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