Credit Suisse thinks the best thing for BlackBerry to do is break up

Credit Suisse is bearish on BlackBerry.

In its fourth quarter earnings released Friday, BlackBerry reported earnings of $US0.04 a share on profits of $US76 million, beating analysts estimates for a $US0.04 loss.

But revenues of $US660 million missed the forecast of $US778 million, and were 32% lower year-over-year.

Shares of the company fell by as much as 7% to around $US8.80 per share in early afternoon trading on Monday, and the stock is down nearly 14% year-to-date, trading at its lowest point since last June.

In a note Monday, Credit Suisse analysts wrote that they expect BlackBerry to continue to “burn cash.”

Given the inherent challenges in turning around the services stream, and subscale loss-making hardware business, we believe it would
be best for the company to break up. Assuming shutting down the hardware business by the end of FY16 and winding down services business by the end of FY17, we arrive at NAV of $US3.2bn ($US6 per share), which approximate 37% downside from the current market price.

Credit Suisse rates BlackBerry “Underperform” with a price target of $US6.

Here are the three biggest threats to BlackBerry’s services business, according to Credit Suisse:

  • The subscriber base will continue to erode.
  • Average Revenue Per User will tank because of the shift towards BlackBerry 10.
  • BlackBerry’s EZ Pass program will be hard to monetise because of the highly competitive market (BlackBerry closed down EZ Pass December 31 according to their website.)

In January, BlackBerry denied a report that Samsung was interested in buying it for as much as $US7.5 billion. The stock surged almost 30% on the report but then tumbled by as much as 15% after BlackBerry refuted the story.

In a separate note, Deutsche Bank analysts wrote that they are not fans of going long BlackBerry because falling revenues set up the stock to plunge even further.

Here’s a chart showing the drop in trading today:

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