Goldman Sachs Downgrades BlackBerry To Sell, Notes Turnaround Efforts Reaching A 'Challenging Phase'

Jayson Derrick

In a report published Sunday, Goldman Sachs analyst Simona Jankowski downgraded shares of BlackBerry Ltd (NASDAQ: BBRY) to Sell from Neutral with a price target lowered to $9 from a previous $10 as the company's turnaround efforts shift from cutting costs to drive revenues –- a more "challenging" phase that may fall short of expectations.

"We think the success of BlackBerry's turnaround hinges on its ability to grow its Enterprise Mobility Management (EMM) software business, where competitors include Mobile Iron, Airwatch, and Good," Jankowski wrote. "BlackBerry has set a target of $500 million in Software segment revenues for fiscal 2016(Feb), up from $250 million in fiscal 2015. We expect it to fall well short of that target and model revenues of $426 million."

Jankowski cited two reasons for the possible revenue shortfall. The first reason consists of low buying intentions for BlackBerry's EMM solution based on conducted surveys. The second reason being the company's target implies that it would "leapfrog" the market leaders in just one year, which is unlikely given the competitor's "much better traction."

Finally, Jankowski forecasted below-consensus Services revenues (down 47 percent in fiscal 2016).

Bottom line, Jankowski noted "significant upside" exists in Hardware revenues, but those are simply "empty calories as they are not profitable." As such, the analyst projected widening losses based on the shortfall in high-margin Software and Services revenues.

Shares of BlackBerry traded recently at $9.97, down 6.5 percent.

Latest Ratings for BBRY

Mar 2015

Goldman Sachs

Downgrades

Neutral

Sell

Dec 2014

JP Morgan

Maintains

Neutral

Dec 2014

Nomura

Maintains

Neutral

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