BlackBerry Ltd (BB): Here’s Why Tim Long Is Not Clapping for the FQ4 Earnings Beat

Though Tim Long notes BlackBerry posted a robust fourth fiscal quarter for 2018, the guide hangs unclear for fiscal 2019 software revenue growth.

BlackBerry Ltd (NYSE:BB) may have delivered a fourth fiscal quarter print for 2018 that dished stronger revenue in software, but BMO analyst Tim Long remains unimpressed and frankly, underwhelmed.

Margins and EPS may have outclassed estimates, but Long’s stinging disappointment boils down to the BB management team; more specifically, a clear “lack of concrete top-line guidance” for the next fiscal year that lies ahead.

In reaction, the analyst reiterates a Market Perform rating on BB stock with a $12 price target, which implies a close to 24% downside from current levels. (To watch Long’s track record, click here)

Currently, BB boasts $1.7 billion in net cash, and Long anticipates the software giant “could put it to use through further M&A this year.” For fiscal 2019, the analyst is betting on 10% in Software revenue gains for BB and maintains his EPS forecast at $0.05. Additionally, the analyst sets a fiscal 2020 projection of $0.06.

For the fourth fiscal quarter of 2018, BB posted $239 million in revenue, beating out the analyst’s estimate of $214 million as well as the Street’s $216 million, thanks to Software-driven upside. Likewise, BB’s Software & Services sales of $218 million soared ahead of the analyst’s $197 million projection and the Street’s $199 million expectations on back of improved Enterprise and Licensing lines. Technologies growth proved robust, meeting the analyst’s prior estimates for the close of the year. As Handheld Devices “business wound down,” Long notes, the segment reported only $2 million in revenue for the quarter. Revenue for Services Access Fee (SAF) also found itself “steadily on its way down, as expected,” the analyst adds.

Gross margin hit 78.7% for BlackBerry, outclassing the analyst’s expectations for 77.0% as well as consensus of 77.1%, which Long attributes to improved software mix. Blackberry’s operating expenses of $169 million met expectations, which led to a strong EPS show of $0.05, trouncing the analyst’s forecast for ($0.01) and the Street’s $0.01.

Long highlights, “For FY2019, BlackBerry guides for double-digit software billings, positive EPS, and positive free cash flow. However, unlike in the past couple of years, management decided against providing concrete software revenue growth expectations.” Now, the analyst angles for 10% in revenue growth, spotlighting 8% in underlying growth for Enterprise, 15% for Technologies, and 8% for Licensing.

Bottom line, “We remain Market Perform on BB shares, as we view the shares as fairly valued at current levels given the growth outlook,” Long concludes, acknowledging strength in the quarter but not thrilled with a “limited” guide.

TipRanks shows heavy apprehension weighing on BB’s name on the Street. Out of 10 analysts, polled in the last 12 months, 3 rate a Buy on BB stock, 5 maintain a Hold, while 2 issue a Sell on the stock. With a loss potential of 28%, the stock’s consensus target price stands at $11.33.

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