BlackBerry Ltd (NASDAQ:BBRY) Earnings Incoming: Here’s Our Preview

Blackberry ltd NASDAQ:BBRY

BlackBerry Ltd just got a hint that its software pivot was the smartest way to go after three years of a turnaround story that saved the firm from the jaws of insolvency.

Morgan Stanley analyst, James E. Faucette says that the firm needs software growth in order to stay healthy even as he has maintains an Equal-weight rating and price target of $7 on the firm. The analyst view echoes market view as the firm prepares to release its Q2 2016 earnings before the bell on Friday.

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BlackBerry has said it plans to generate upwards of $200M in licensing revenue for FY 2016 but the Morgan Stanley analyst thinks that the firm doesn’t have enough license/patent deals to put off the deal. In his words, “we do not think there is a deep pool of large licensees, and until BlackBerry can demonstrate recurring revenue from licensing agreements, we are apt to treat these opportunities as one-time events.”

Here’s what the market expects BlackBerry to report

In the last reported quarter, the firm posted a negative EPS surprise of -25.00% when it showed a loss of -$0.05 below the consensus estimate of $0.04. However, the firm has posted solid earnings beat in the previous three quarters before that, and it has an average earnings surprise of 103.31%. Going forward, analysts expect the firm to report loss of $0.07 but the consensus stands at a loss of $0.08.

A number of factors in the soon-to-be-reported quarter will influence the kind of earnings that BlackBerry will post. For instance, the firm will need to grapple with headwinds of dead hardware sales as BlackBerry Passport failed to make a dent in the market. The deal to buy Good Technology will also cause a short-term cash squeeze but it might give is mobile security business a boost going forward.

On the plus side, the firm’s BES 12 platform is enjoying goodwill in the security space. In fact, the firm is getting more recognition for the quality of its mobile security offerings; hence, the market might be pleasantly surprised by tailwinds from its BES 12 platform.

An Android phone will not save BlackBerry

There has been an unending stream of hints, rumors, and leaks about BlackBerry’ s plan to make an Android Smartphone. The firm has not confirmed or denied the reports but it doesn’t take a rocket scientist to know that BlackBerry is indeed making an Android phone. However, Morgan Stanley notes that smartphone market is already saturated and that an Android phone won’t make much of a difference for BlackBerry.

In the words of Faucette, “We do not think launching Android-based BlackBerry devices will improve prospects, noting maturation of the handset market, the declining industry profit pool and competition from lower ASP models,”

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.

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