Software revenue slump drags BlackBerry shares

BlackBerry Ltd.’s stock price slumped the most in a year after it predicted slower annual growth in software revenue and changed its sales model due to new accounting standards.

The Waterloo, Ont.-based smartphone-turned-software firm’s shares fell 9.3 per cent to $14.16 on the Toronto Stock Exchange on Friday after it estimated annual total software revenue growth of eight to 10 per cent, down from 14 per cent last year. It also reported that its enterprise software revenue fell to US$83 million for the three months ended May 31, from $101 million in the same period last year and short of RBC Capital Markets analyst expectations of US$106 million.

That division, which helps firms secure mobile devices, has pulled in the bulk of BlackBerry’s revenue since it gave up on selling handsets in 2016. Despite the drop, it remains BlackBerry’s top revenue source.

Chief executive John Chen blamed the change in part on a new accounting standard called ASC 606 that required BlackBerry to report less revenue upfront. As such, it is shifting its sales model from a longterm licensing model to a subscription service. Going forward, all contracts it inks will be for smaller amounts over time instead of a big chunk at once. It will make exceptions for perpetual licensing models for large government customers, which Chen said accounted for between 25 and 30 per cent of revenue last year.

Analysts questioned whether the shift could hurt revenue for an extended period.

Chen said he expects flat enterprise billings this year, but the changes will improve recurring revenue. While the move was “a little bit of an adjustment” for the global sales team, Chen said they bought into the strategy at a recent meeting. “It’s good for the company, because as recurring rate goes up, it makes our business model predictable, and actually you could argue the margins are better.”

Still, he told analysts that BlackBerry is “off to a pretty good start” for the year given total software revenue rose 14 per cent year-overyear to $193 million. That includes revenue from its licensing division and QNX, which is responsible for the connected car technology.

BlackBerry will rely more on increasing revenue in these divisions, which Chen said “look pretty solid.” BlackBerry’s in-car software is now in 120 million vehicles worldwide, he noted. That division is growing as car vendors use different QNX technologies.

The company reported a net loss of US$60 million, down from a profit of US$671 million last year. Last year’s results were inflated by a one-time windfall after BlackBerry won US$940 million in an arbitration with Qualcomm.

Excluding certain items, BlackBerry said it earned US3 cents per share, beating analysts’ expectations, according to Thomson Reuters I/B/E/S.