Blackberry (BB) shares fell 11% in the past two days as investors were less-than-satisfied with the company's fiscal first-quarter earnings release.
Specifically, the former smartphone maker reported revenue of $267 million, beating last year by 23% and Wall Street consensus by $2 million. Further, Blackberry saw EPS rise to $0.01, which, while low, was still higher than consensus estimates of $0.00. But investors were not too happy about results from Cylance, the security software developer Blackberry acquired in February. Though revenue rose 31% since last year, many expected stronger results.
As a result of the earnings, RBC Capital analyst Paul Treiber has dropped his price target from $10 to $9, while maintaining a Sector Perform rating. It's very much an 'I told you so' moment for Treiber after warning investors that shares are fairly valued. (To watch Treiber's track record, click here)
The main sticking point in Treiber’s mind is Blackberry’s Enterprise Software and Services (ESS) segment. Though the analyst acknowledges stronger growth all around, he says below-expectations revenue from ESS “overshadowed” the positives. ESS generated $83 million, or flat since last year, with Treiber’s estimating $95 million. As a result, the analyst says, “BlackBerry remains a ‘show me’ story, as the shortfall at ESS reduces visibility to BlackBerry’s long-term growth.”
Though the market was not too kind to Blackberry, upper management is still confident about the company. Management reaffirmed its FY20 guidance for 12-16% IoT growth (ESS + BTS), given new product launches, BTS design wins, and sales leadership changes at ESS. Management also reaffirmed FY20 guidance and expressed confidence in future growth opportunities. Further, the company sees Cylance as ahead of schedule, and expects to launch more than 30 products this year, which is expected to bolster sales.
Though management is confident in Blackberry, Treiber believes the stock is in a unique position. The analyst says, “the investor debate on BlackBerry stems from the company’s future opportunity compared to its current momentum.” This is not dissimilar to the likes of Uber and Tesla where many bearish investors are looking at the companies’ poor performance right now as an indicator, while bullish investors look at the transformational potential someday in the future — but unlike the aforementioned companies, Blackberry is already 35 years old and was once already looked at as a revolutionary company.
All in all, the Wall Street community does not have much to say on Blackberry. TipRanks analysis shows only four ratings, with one analyst recommending Buy and three suggesting Hold. The average price target among these analysts stands at $10.22, which represents a 35% rise from current levels.
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