BlackBerry Ltd. Earnings: The Fight Goes On

Although it's given up some of its gains in the last month or so, shares of Canadian smartphone marker BlackBerry (NASDAQ: BBRY  ) remain firmly ahead of the broad market so far in 2014,  and for good reason.

Under new CEO John Chen, BlackBerry's progress in adapting its business model to its current circumstances has been nothing short of remarkable when compared to the paltry pace of change from past management regimes.

And in keeping its recent hot streak alive, BlackBerry appears to have notched another win, at least in the market's eyes, when it reported its FY Q4 '14 earnings. So without further ado, let's dig into the particulars of BlackBerry's most recent report.

Shifting sands at BlackBerry
As you might expect, BlackBerry's report contains its fair share of good and bad news.

At a higher strategic level, this report is only so useful as a yardstick in sizing up BlackBerry's financial performance as it is in trying to wrap one's head around the progress BlackBerry's making in essentially gutting its old business model in favor of the vastly more sustainable approach favored by Chen. When compared to the same quarter last year, BlackBerry's revenue utterly fell off a cliff, declining by 64%.

Source:BlackBerry

However, it's important to remember that BlackBerry's financial performance in the same quarter last year is that of almost a very different company, so much of the usual year-over-year benchmarking ultimately doesn't reveal much.

That's where BlackBerry Q3 '14 comps come in. And although they mark the first quarter in which BlackBerry initiated its new software and services intensive business model, and thus still limited on how much they can truly say about BlackBerry's new long-term potential, they're without question the best basis for comparison for investors.

Unfortunately, comparing BlackBerry's Q4 '14 numbers to the prior quarters' still paints a pretty bleak situation about the current goings on at BlackBerry. See for yourself.

 

Q3 

Q4

% Change

Total Revenue

 $1,200

 $976

-18.7%

Hardware

 $480

 $361

-24.8%

Services

 $636

 $547

-14.1%

Software

 $84

 $68

-18.7%

Source: BlackBerry Investor Relations

Falling hardware revenue should be expected as its current suite of phones have proven remarkably unpopular and as BlackBerry awaits the launch of several cheap devices set to launch in the coming months that will ideally play to its strengths in emerging markets. 

However, the on-going challenges with both services and software revenues does concern me. BlackBerry's drawn a bit of a line in the sand, saying it's now a mobile software company where its hardware is merely a gateway to its software platforms. BlackBerry probably is, and should, be playing the long game in first seeking software market share before focusing on profits. However, seeing a sales upswing would have gone a long way in encouraging me they're on the right track.

BlackBerry didn't give much in the way of specific guidance either, merely saying it's targeting cash flow breakeven within the next 12 months. In order to do this, BlackBerry will clearly need to begin to monetize its software and services to a greater degree than it has already. This is certainly possible, but an essential ingredient if BlackBerry stands even the slightest chance of achieving the goal it posed in its outlook.

Still fighting
This report certainly didn't indicate the kind of success it will take to keep BlackBerry afloat over the long-term. However taken in fuller context, it's passable.

BlackBerry still has $2.7 billion in cash on its books, so it remains out of immediate danger of a some kind of funding shortfall. BlackBerry's also notched a few noteworthy wins for its software adoption in areas like smart cars and mobile messaging. The ultimate test will be whether BlackBerry can translate those wins into actual profits, and the uncertainty there is ultimately what's keeping away from BlackBerry's stock today.

However, all in all, BlackBerry lives to fight another day.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 01, 2014, at 12:33 PM, melegross wrote:

    More worthless analysis. This author, like many others, doesn't seem to understand basic economics, and supply and demand.

    This company's performance is dismal, and nothing Chen has done has changed that. Let's understand something here. The chorus over the amount of cash this company has is deafening. It's also untrue.

    This company doesn not have $2.7 billion in cash and investments. Most of that money now is from the debentures they issued for Fairfax. Fairfax is, essentially, lending Blackberry money, which they retained the right to demand back at any time. Therefor, most of Blackberry's money is in the form of a loan, which needs to be repaid at some point. This therefor, is in reality, debt.

    It will be interesting to see what happens as Blackberry's condition continues to significantly worsen and that cash gets used up, with little to show for it. At so e point, they may decide that they need to reclaim much of it. If that happens, Blackberry is dead.

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