Following BlackBerry Ltd BBRY 0.81%’s disappointing first-quarter earnings report, some Wall Street analysts are now as skeptical as ever that BlackBerry’s software and services segments can generate the type of growth that the company is projecting.
In the first quarter, BlackBerry reported a 42.5-percent decline in revenue from a year ago. The company said its software and services revenue was down 3 percent year over year, which raised a red flag for Credit Suisse analyst Kulbinder Garcha.
“While the company continues to expect this business to grow mid double digits (10%-15%), at or faster than its end markets, we note that to hit full-year guidance a major reacceleration is now needed, which we believe seems unlikely,” Garcha wrote on Monday.
With no end in sight to BlackBerry’s system access fee revenue decline, Garcha said there are just too many pressures on free cash flow to be constructive on BlackBerry stock at the moment.
Without the one-time $940 million arbitration payment from QUALCOMM, Inc. QCOM 1.03%, Garcha pointed out Blackberry’s FCF would have been -$80 million on the quarter.
When it comes to the long-term outlook for BlackBerry, Credit Suisse isn’t particularly optimistic. Even factoring in 15-percent growth in software revenues in 2018 and 2019, the firm still projects peak EPS of just $0.23 from BlackBerry in 2019. Garcha called these growth projections “generous” given BlackBerry’s “average” software portfolio and the highly competitive environment.
BlackBerry shares plunged 12.2 percent on Friday following the company’s disappointing earnings report. However, after a 3.4 percent bounce on Monday, Credit Suisse sees…
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