BlackBerry Earnings Show Major Progress

| About: BlackBerry Ltd. (BBRY)


BlackBerry reported earnings this morning, handily beating EPS but missing on revenue.

This is a product of the company's strategy shift from hardware to software.

All in all, this report shows tons of progress in a small amount of time by John Chen and team.

Once the market realizes this isn't BlackBerry "the phone company" any more, the market will reward the progress that has been made.

"I am very pleased with our progress and execution in fiscal Q4 against the strategy we laid out three months ago. We have significantly streamlined operations, allowing us to reach our expense reduction target one quarter ahead of schedule," said John Chen, Executive Chairman and Chief Executive Officer of BlackBerry. "BlackBerry is on sounder financial footing today with a path to returning to growth and profitability."

-BlackBerry PR

Look, BlackBerry (NASDAQ:BBRY) is heading through a transitional period, alright? They're making a big push from hardware to software, trimming assets, getting the company leaner and meaner, and making major macro-style shifts. Sometimes, that's a bit ugly to look at.

This morning, BlackBerry reported earnings, and the numbers were all over the place. The company was able to beat on the bottom line, but missed big on its revenues, posting under $1 billion in revenues for the first time in a long time.

But, who really cares about hardware revenues right now? If the company did $100 in revenues, but broke even for the quarter, I'd be alright with it. That's because I'm more focused on the strategy behind the company's moves, not how many phones the company sold last quarter.

Seeking Alpha reported:

  • BlackBerry (BBRY): Q4 EPS of -$0.08 beats by $0.46.
  • Revenue of $976M (-63.6% Y/Y) misses by $134M.
  • Revenue of $976M off 18% from FQ3 and off 64% from a year ago, with services revenue outpacing hardware (56% vs. 37%).
  • Cash and marketable securities of $2.7B as of March 1 is off from $3.2B three months previous.
  • CEO John Chen: "We have significantly streamlined operations, allowing us to reach our expense reduction target one quarter ahead of schedule."
  • Outlook: Company anticipates maintaining strong cash position and continuing to look for opportunities to streamline operations; targeting break-even cash flow by the end of fiscal 2015.
  • BBRY remains halted until 7:30 ET. Shares were ahead 4.3% before the earnings release.

But, that is a product of the restructuring of the company. This company is going to be smaller than it once was - much smaller. Only after BBRY gets to that point, where it's as clean and as small as possible, can John Chen then start to build things upwards. You must tear down, essentially, almost the entire company in this case, in order to rebuild it back up again. So, that's how I feel about revenue.

Now, let's address EPS. The company's EPS should be looked at as a gauge of how effective management is being in taking the necessary cuts to "stop the bleeding." BlackBerry continues to bleed, yes, but Chen is twisting the tunicate as hard as he can here, and as a result of that we are seeing our adjusted EPS beat this quarter.

This company continues to sit on a monster cash position, and is now forecasting going cash flow even just one year from now - that's impressive, considering Chen's tenure has been anything but lengthy.

One of the advantages that I liked about Chen coming was that he had no emotional attachment to the BlackBerry brand and was able to apply some common sense to how he was going to make cuts.

Further, aside from QNX and the software side of the business, let us not forget that BlackBerry still has BBM to monetize from, and will likely grow that portion of its business in the coming year while they continue to restructure.

Remember, this is not BlackBerry "the phone company" anymore. This is BlackBerry the enterprise company. Success is not going to be gauged by how many phones the company sells, but by its software partnerships and continued enterprise growth. One the headline of revenues is put behind us, and we can see the forest for the trees (i.e. how much work Chen has done in a short amount of time), the market is likely to start to pile in again and reward BlackBerry here.

The facts are that this company continues to have a monster cash position to sit on ($2.7 billion) which will offer Chen all the time he needs in order to right this ship. The company's fundamentals and balance sheet show that it's still trading at an extremely low price/book ratio and fundamentally has two strong legs to stand on.

Simply put, I'm pleased with the direction that BlackBerry is heading in and once the market starts to realize that this is a "big picture" move happening here - and that sometimes change isn't all sunshine and rainbows - the market is likely to reward BlackBerry.

BlackBerry's conference call is scheduled for 7:00AM CST this morning. Unfortunately, due to travel, I will miss it, but will be checking in on things later on in the day today.

Disclosure: I am long BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long BBRY but may reserve the right to close my position at any time, without notice.