Investors have been somewhat schizophrenic this year in assessing and re-assessing the odds that CEO John Chen will succeed in pulling the company out of its steep dive. After a quarter with a narrower than expected adjusted loss, higher than expected revenue and lower cash burn, they’re back to focusing on the upside.
But there’s plenty more evidence in Chen’s favor of a possible recovery than these few top-line surprises.
As noted previously, Chen has laid out a credible game plan for a recovery while removing costs and reducing risk by outsourcing some manufacturing. And the stock remains cheaply valued after dropping 37% last year following a 90% decline in 2011 and 2012.
Bears had been fixating on Blackberry’s use of cash. In the previous quarter, Chen’s team burned through almost $800 million. But this quarter, excluding the effects of a real estate sale, the burn was down to $255 million. With the real estate sale and a tax refund, Blackberry’s total cash actually rose to $3.1 billion from $2.7 billion three months earlier.
Talking to analysts after the results came out, Chen reiterated that the company would be cash-flow positive by the end of its fiscal year in February 2015.
In Blackberry's consumer business, Chen said the new Z3 phone got off to a good start in Indonesia, the first market where the inexpensive model is being sold. This quarter, Blackberry will begin selling the Z3 in India and Vietnam. And the company will launch a new higher-end device called Passport in September, along with a throw-back to the old-school hardware keyboard Blackberries, dubbed the Classic, in November.
Still, Blackberry sold only 1.6 million phones in the quarter. Chen has said the company needs to sell 10 million handsets a year to turn a profit on hardware, about double the most recent quarterly rate.
The company will also likely hit 100 million monthly active users on its free BBM messaging software platform by the end of the year, Chen said. It wants to add a payments feature to "monetize" the otherwise free the app eventually, he said.
Blackberry’s service business has lost ground to upstarts such as MobileIron (MOBL) and Good Technology, which were quicker to help companies address the “bring your own device,” or BYOD, trend and incorporate Apple (AAPL) iOS and Google (GOOGL) Android devices.
But Chen insists Blackberry's offerings have caught up and he’s winning back some business.
“I don’t want to tell you that, yeah, we’re gaining everybody back,” Chen said on a call with analysts. “I think that will be an over-exaggerated statement. But on the other hand, I think my success rate is ticking up.”
Blackberry attracted 2,600 customers during the quarter, who traded in 1.2 million device licenses under its “EZ Pass” program that allows an upgrade to the company’s latest management-and-oversight software. More than 10% of the licenses traded in were for software sold by competitors such as MobileIron, which went public last week, and Good, which has filed to go public soon.
That may explain part of why MobileIron saw its revenue growth slow in the first quarter. Revenue of $28 million was up just 9% from the same quarter last year, though an accounting change related to revenue recognition also figured into the slowdown.
So. at least for this quarter, Blackberry investors are getting on board Chen's turnaround train.