BofA: BlackBerry's Q3 Hinges On One-Time Deals

BlackBerry Ltd BB is scheduled to report third-quarter results for fiscal 2018 before the open Wednesday, Dec. 20.

The Analyst

Bank of America Merrill Lynch analyst Daniel Bartus reiterated an Underperform rating and $8 price target for the shares of the company.

The Thesis

The BlackBerry bull case hinges on QNX auto software, which accounts for less than 10 percent of the total sales, but is supported by software and services growth outside of QN, Bartus said. And though the analyst said software and services growth could disappoint, one-time IP licensing and services deals could again come to the rescue as they did in the second quarter. 

Past one-time items could set up difficult year-over-year and sequential revenue comps, the analyst said. The combination of service-access fee declines along with the last of handset sales could weigh on margins, Bartus said. 

The Street has lowball numbers, with a third-quarter revenue estimate of $217 million, according to BofA — down 28 percent year-over-year and a 13-percent sequential drop. The consensus also calls for 0 cents per share earnings. The upside or downside to the $217-million estimate depends on when one-time IP licensing deals materialize, Bartus said. 

The BofA Forecast 

• Enterprise software: 12 percent year-over-year growth on an easy comp.
• The technology solutions segment: 6 percent sequential growth, but a 6-percent year-over-year drop on a more difficult comp.

Incremental growth from new radar products and "lumpy" QNX services could provide upside, Bartus said. If Blackberry cannot stitch together new IP deals for the third quarter, BofA projects downside risk to estimate, highlighting the weakness surrounding QNX hype.

"Given the main Blackberry bull case centers on the relatively small auto software (9 percent of sales) and the core business remains stagnant, we continue to view 4.7x our CY19 EV/sales as a steep price for the stock," Bartus said. 

The Price Objective

BlackBerry shares are up 60 percent year-to-date.

At the time of writing, the shares were up 1.43 percent to $11. 

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Photo courtesy of BlackBerry.