This is the sixth consecutive quarter that analysts expect BlackBerry Ltd. to earn, on average, zero cents a share. But that doesn’t mean you should expect nothing on Friday, when the company releases its results.
Indeed, in five of the past six quarters, the stock has seen double-digit moves – in either direction – in the seven trading days following earnings. After the August, 2017, results, Blackberry went on a 20-per-cent tear over that seven-day period. After the company’s most recent numbers, for the February quarter, the shares toppled more than 18 per cent.
Sadly for BlackBerry, the biggest risk of a fall on Friday may come from the company simply following new accounting rules on revenue reporting for customer contracts.
The issue of how companies report sales from some combination of hardware or software and continuing services has long been a sticky one in the tech industry. “ASC 606,” as it’s titled, may help smooth BlackBerry’s revenue numbers and minimize the surprises in the long term. The downside is that because BlackBerry will recognize certain licensing revenue “ratably,” over the life of the contractual relationships, rather than taking a chunk upfront, its growth numbers will retreat in the short term.
Analyst Paul Treiber of RBC Dominion Securities Inc. says he expects enterprise software revenue for this, BlackBerry’s first fiscal quarter, to rise just 5 per cent, year over year, to US$106-million for that specific business. The US$114-million figure in the fourth fiscal quarter represented a 12-per-cent year-over-year gain. “ASC 606 increases BlackBerry’s mix of recurring revenue and reduces quarterly variability but lowers near-term growth,” he writes.
The analyst team at Morgan Stanley believes consensus revenue expectations of US$208-million are too high because of the accounting change, with analysts underestimating the impact. If so, it will be interesting to see the market react if Blackberry reports a revenue “miss.”
Once the Street absorbs the accounting change, there’s plenty of other things to watch. Morgan Stanley says BlackBerry needs to start demonstrating that it’s taking advantage of growth opportunities and moving past “the consistently disappointing revenue performance in recent history.”
Any developments on intellectual-property licensing deals will be a focus area, Morgan Stanley says; the firm is expecting US$180-million in IP licensing revenues, including US$40-million in new one-time licensing arrangements.
Tim Long at BMO Nesbitt Burns Inc. is more bullish than most – his model calls for US$224-million in revenue and 2 US cents of earnings a share, slightly above the average break-even estimate. His forecasts for the August quarter are also above consensus.
Still, he’s cautious on the long-term profit-margin goals BlackBerry discussed at its April investor day; his model calls for smaller numbers in the company’s 2020 fiscal year. With the company guidance so fresh, it’s not likely Friday will bring news the forecasts are off course. Still, it illustrates BlackBerry is very much in “show-me” mode, accounting change or no.
Meanwhile, look for a downward move in shares of Red Hat Inc. on Friday. Late Thursday, it forecast current-quarter profit and revenue that missed analysts’ estimates, as the Linux operating-system distributor cited a strengthening U.S. dollar.
Red Hat expects second-quarter revenue between US$822-million and US$830-million, and an adjusted profit of about 81 US cents a share. Analysts on average expect revenue of US$854.9-million and a profit of 89 US cents a share.
With files from Reuters
David Milstead