Surprise! BlackBerry Isn’t Dead

Blackberry

Source: http://www.flickr.com/photos/langleyo/

It has been no surprise that BlackBerry Ltd. (NASDAQ:BBRY) was a complete dog of a stock in the last few years. It has had trouble managing cash, has failed to innovate relative to the stronger competitors such as Apple (NASDAQ:AAPL). In fact, the stock is down 90 percent in the last five years. Over the last year it has stabilized around the $9.00 mark. Could the company and the stock be starting to turn around? While the company has failed to innovate, it is trying and is still pulling in money. Sales and revenues are down, however, expectations are so low for this company that the stock may actually be worth speculating in after its most recent quarter, which I believe will send the stock higher, perhaps back over the $10.00 mark.

As I stated, revenues are down, but were better than expected. Revenue for the first quarter of fiscal 2015 was $966 million, down $10 million or 1 percent from $976 million in the previous quarter. The revenue breakdown for the quarter was approximately 39 percent for hardware, 54 percent for services and 7 percent for software and other revenue.

During the first quarter, the company recognized hardware revenue on approximately 1.6 million BlackBerry smartphones compared to approximately 1.3 million BlackBerry smartphones in the previous quarter. During the first quarter, approximately 2.6 million BlackBerry smartphones were sold through to end customers, which included shipments made and recognized prior to the first quarter and which reduced the company’s inventory in channel.

Turning to income, the company saw GAAP net income for the first quarter of $23 million, or $0.04 earnings per share. Excluding certain items, adjusted loss for the first quarter was $60 million, or $0.11 per share. The total of cash, cash equivalents, short-term and long-term investments was $3.1 billion as of May 31, 2014, compared to $2.7 billion at the end of the previous quarter — a net increase of $429 million. Excluding receipt of a tax refund of $397 million and proceeds on the sale of real estate of $287 million, the company used $255 million in the first quarter.

This represents a decrease from $784 million used last quarter, after excluding proceeds of $250 million related to convertible debt issuance. Purchase obligations and other commitments amounted to approximately $1.8 billion as at May 31, 2014, with purchase orders with contract manufacturers representing approximately $317 million of the total. Executive Chairman and CEO John Chen stated:

“Our performance in fiscal Q1 demonstrates that we are firmly on track to achieve important milestones, including our financial objectives and delivering a strong product portfolio. Over the past six months, we have focused on improving efficiency in all aspects of our operations to drive cost reductions and margin improvement. Looking forward, we are focusing on our growth plan to enable our return to profitability.”

I have to be honest. I am impressed considering this company had one leg in the grave. Looking ahead the company anticipates maintaining its strong cash position, while increasingly looking for opportunities to prudently invest in growth. The company is targeting break-even cash flow results by the end of fiscal 2015. In the coming quarter, the company expects to lose even less money, targeting about $0.04. On the back of these impressive results, I am upgrading my prior recommendation on the company from a sell to a hold and am assigning an $11.00 price target.

Disclosure: Christopher F. Davis recently closed a short a position in BlackBerry prior to results. He holds no position in the stock and has no plans to initiate a position in the next 72 hours. He has a hold rating on the stock and an $11 price target.

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