Bottom Line: BlackBerry's Q1 Was A Disappointment

Despite an EPS beat of $0.02 compared to the Street’s $0 estimate, BlackBerry Ltd BBRY’s was unable to fend off worsening investor sentiment after it reported first-quarter earnings on June 23.

Wells Fargo analyst Maynard Um reiterated a Market Perform rating and $9 price target.

Um recounted the good and the bad from the earnings report in a note on Sunday (see Um's track record).

The Good

• BlackBerry’s EPS of $0.02 beat both Um’s and the Street’s estimates, leading Um to revise his fiscal 2018 estimate up to $0.04
• The company provided greater detail regarding its software revenues: $101 million from enterprise software, $26 million from technology solutions and $32 million from licensing/IP.
• Handheld device revenues were $38 million compared to Um’s estimated $27 million.

The Bad

• Software sales misses the mark, coming in at $169 million versus the Street’s $181 million estimate.
• Gross margin of 67 percent also missed estimates by slightly more than 3 percent.
• Second half 2018 is forecast to make up the majority of this fiscal year’s revenue growth.

The Summary

All in all, BlackBerry’s Q1 was a disappointment. While the company still expects its software business to grow at or above the market’s pace, hitting 10–15-percent growth will be challenging with the business so reliant on the year’s second half.

A reduction in operating expenses helped to offset early shortfalls, but Um that software growth needs to be the company’s driver instead of cost cutting.

Um was also disappointed that management did not provide gross and operating margins by segment.

Investors should find some consolation though, in the 31 million share buyback this year announced during the report.

At time of publication, shares of BlackBerry were up 3.09 percent at $10.01.

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