BlackBerry’s stock has lost 96% of its value since reaching its peak of almost $US140 a shre in 2007.
That was back when BlackBerry dominated the business mobile communications market and ironically, the same year that its replacement, the iPhone came out.
Since then, BlackBerry has undergone a transformation to survive, morphing from a hardware company to a software company.
In a note circulated to clients on March 31, RBC equity analyst Paul Treiber explained why he believes that BlackBerry’s turnaround is complete. Here’s Treiber:
The risks with BlackBerry’s turnaround appear to have diminished. The company is no longer dependent on SAF-related cashflow and the liability from hardware has been largely eliminated. As such, we are removing our Speculative Risk qualifier. Investor focus will shift to the growth of BlackBerry’s software business; new opportunities are emerging, but they are difficult to value at the moment.
RBC moved its rating on BlackBerry to “Sector Perform” while eliminating its speculative risk qualifier on the stock. This means that RBC is covering BlackBerry as it would any other technology company, instead of flagging the name as a speculative investment.
BlackBerry ended Monday’s session at $US7.77 a share, and RBC predicts it will reach $US8 over the next 12 months. BlackBerry has rarely broken the $US8 mark since mid-2015.
For years BlackBerry has relied on Service Access Fees (SAF) that are payed to use its operating systems. However, SAF revenue is in drastic decline because of the near extinction of BlackBerry’s operating systems ecosystem. In the past, investors have worried that when that number hits zero BlackBerry will be doomed.
Fortunately, says RBC, BlackBerry has been hard at work transforming into a Software as a Service company (SAS), focused on security.
However, it’s still just the beginning and it’s a slow start, according to the bank:
“Core software revenue growth appears slower than generally expected. Q4 segmented Software & Services revenue rose 1% Q/Q to $US166MM non-GAAP, below our $US180MM estimate and the Street at $US184MM. Segmented software revenue rose only 7% Y/Y.”
On the bright side, RBC says, “EBITDA improved from $US37MM Q3 to $US42MM Q4, above our $US29MM estimate and the Street at $US30MM; Q4 is BlackBerry’s 13th consecutive quarter of positive EBITDA.”
If BlackBerry can stay on track, RBC believes that the company can bring in $US968 million in revenue by 2019, almost double 2016’s $US527 million.
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