BlackBerry falls as key software revenue plunges
CEO blames new accounting standard
TORONTO • 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 company’s shares fell 9.3 per cent to $14.16 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 companies 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, BlackBerry is shifting its sales model from a long-term 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.
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 in Waterloo.
“They are well understood that it is what it is, that it is the reality,” Chen said. “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, Chen told analysts that BlackBerry is “off to a pretty good start” for the year given total software revenue increased 14 per cent year-over-year to $193 million. That includes revenue from its licensing division and QNX, which is responsible for the connected car technology on which BlackBerry is betting heavily.
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 around the world, he noted. That division is growing as car vendors use different QNX technologies, such as entertainment systems and automated lane assist.
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 that it would break even, according to Thomson Reuters I/B/E/S.
CFRA Research analyst Angelo Zino said the turnaround is working for BlackBerry and investors need to keep a long-term view on the company.
“You don’t see big topline and bottom-line growth because the company is still adjusting every quarter from the winding of their hardware business,” Zino said.