BlackBerry Slightly Overvalued
We're maintaining our fair value estimate after the firm reported in-line results.
BlackBerry (BB) reported fiscal fourth-quarter revenue and earnings that were in line with consensus but slightly off our internal estimate. While the firm continues to make headway in the enterprise mobility management software market, or EMM, we remain doubtful about BlackBerry’s ability to effectively compete with much larger companies in the space in the long run, though the firm’s recently announced partnership with Microsoft provides its current standing within the EMM space some support. Management guided to double-digit revenue growth in software and services for fiscal 2019 and expects positive non-GAAP EPS and free cash flow. We did not make any significant changes to our projections and maintain our $10 per share fair value estimate for BlackBerry. While the shares are trading flat after the earnings announcement, we remain convinced that they are slightly overvalued. We recommend a wider margin of safety before investing in this no-moat and very high uncertainty name.
Total revenue came in at $233 million, down 19% year over year. With revenue from handheld devices and service access fees continuing to dwindle away, as expected, the 16% year-over-year growth in software and services revenue, which accounted for 91% of the company’s total revenue, was encouraging. According to management, BlackBerry enterprise software is gaining further traction in the government vertical, which brought in 40% of total enterprise software revenue. Plus, the firm recently announced a partnership with Microsoft providing additional security and a more consistent user interface and experience for Microsoft apps on Android and iOS mobile devices, which we think could help BlackBerry sign additional enterprise clients.
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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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