BlackBerry Ltd (BBRY) Operating Segment Reorganization Leaves Room for Concerns


BlackBerry Ltd (NASDAQ:BBRY) shares were on a close to 12% surge Friday after the smartphone maker outclassed expectations across the board with its fiscal fourth-quarter earnings release for 2016. Investors continue to clamor to buy BlackBerry stock as shares continue their rise in pre-market trading today.

On a positive standpoint, William Blair analyst Anil Doradla praises Blackberry’s software and services segment, believing that its “solutions appear to be headed in the right direction.” Nonetheless, the analyst believes “confusion remains” with regards to the company’s operational revamp throughout the last several quarters. Therefore, the analyst remains sidelined, reiterating a Market Perform rating on shares of BBRY without listing a price target.

For the fourth fiscal quarter, Blackberry posted $193 million in non-GAAP revenue, which marked a 24% year-over-year climb and simultaneously hit ahead of both the analyst’s projection of $190 million as well as the Street’s of $184.2 million. Importantly, thanks to strong revenue, Blackberry management met its goal looking for 30% annual growth.

Additionally, the analyst attributes a “higher-margin segment” for BBRY reaching a 65.3% non-GAAP gross margin, which meaningfully topped this time last year’s margin of 48.7%. For Doradla, the issue arises that though gross margin performed well compared to this quarter one year prior, it underperformed Street expectations of 67.5%. The stumble occurs “partly as a result of higher-than-expected contribution from the mobility solutions segment,” explains the analyst, who underscores a $31 million hike between GAAP basis and the Street’s forecast as well as $19 million higher than the analyst’s estimate.

For the first fiscal quarter of 2017, BBRY management guides from 13% to 15% growth in the software and services segment, which the analyst believes takes under account a non-GAAP) base circling $687 million. Moreover, BBRY looks for full-year non-GAAP gross margin to hit 70% in fiscal 2018, aligning with the analyst’s past projection of 70.4%.

“From our point of view, there were three key takeaways: 1) we are incrementally positive regarding the company’s software segment, which on a non-GAAP basis reached management’s 30% annual growth target for fiscal 2017; 2) the company is reorganizing its operating segments to present a clearer picture for the software and services segment, which has been a source of confusion for us and for the Street over the past several quarters as a result of differences between the company’s internal operating structure and reported commentary; and 3) management gave additional color on the company’s efforts in the automotive segment,” Doradla contends, hopeful for “more clarity to future results” following management’s segment restructuring efforts.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Anil Doradla is ranked #279 out of 4,562 analysts. Doradla has a 69% success rate and garners 18.5% in his yearly returns. When recommending BBRY, Doradla earns 0.0% in average profits on the stock.

TipRanks analytics indicate BBRY as a Buy. Based on 4 analysts polled by TipRanks in the last 3 months, 1 rates a Buy on BlackBerry stock while 3 maintain a Hold. The 12-month average price target stands at $8.00, marking a 3% upside from where the stock is currently trading.

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