Is the Death of BlackBerry A Buying Opportunity?

As I write this, shares of BlackBerry Ltd. (BBRY) are rallying after it announced fiscal second-quarter results, and made a game-changing announcement about its smartphone business. After years of poor performance, will BlackBerry become the turnaround story of 2016? Let’s find out, starting with its headline-making Q2 report.

I must say, analysts didn’t expect much from BlackBerry for Q2. The consensus estimate called for a loss of $0.05 per share on $393.75 million in revenue. While this would’ve been an improvement from the $0.13 loss per share posted a year ago, it also represented a 20% drop in sales.

It turns out the BlackBerry handily beat EPS estimates, but it missed the mark on sales. The company ended up posting $0.00 adjusted earnings per share on $352 million in revenue. Q2 sales ended up being 28% lower than a year ago.

Notably, software and services sales doubled; this unit accounted for 44% of BlackBerry’s top line. Looking forward, BlackBerry expects software and services to deliver 30% sales growth for FY 2016. Meanwhile, smartphone sales made up just 30% of total sales.

BlackBerry also made a major announcement about its smartphone business. For the first time since 1999, it will no longer be making its flagship smartphone. Instead, it has signed a licensing agreement with an Indonesian producer to make and distribute BlackBerry devices. BlackBerry is expected to ink similar deals with manufactures in China and India. While the “CrackBerry” has gone out of style in the U.S., there is still robust demand in emerging markets in Asia and Africa.

Wall Street cheered the move, which will give BlackBerry more leeway to focus on its enterprise software business. However, I wouldn’t hop on the BlackBerry hype train just yet. The fact remains that the company is expected to be in the red for the next several quarters.

For the current fiscal year, analysts expect BlackBerry to post a loss of $0.15 per share on $1.61 billion in revenue. Sales are expected to be 26% lower than last year. And even for the next fiscal year, the consensus estimate calls for a loss of $0.16 per share on $1.51 billion in sales.

As it stands, it’ll take a while for BlackBerry to turn itself around. For these reasons, BBRY is a C-rated Hold in Portfolio Grader. These are exciting developments to be sure, but it’s too soon to tell how it’ll play out over the next few quarters.

Sincerely,

Louis Navellier

Louis Navellier

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