BlackBerry's Good News
Thanks to its decision to no longer develop mobile devices and to continuing growth in its high-margin software and services revenue, we're raising our fair value estimate on this no-moat tech firm.
BlackBerry’s total non-GAAP revenue in the quarter was $352 million and consisted of $156 million, $105 million, and $91 million from software and services, mobile solutions, and service access fees, respectively. While software and services revenue increased 111% from the prior year, we note that it includes revenue from Good Technology, which BlackBerry acquired in November 2015. The 80% gross margin in this segment was certainly impressive. As a higher percentage of this segment’s revenue becomes recurring (81% in the second quarter), we expect its gross margin to expand by 100-200 basis points by fiscal 2021. Operating income was $29 million, representing a 19% operating margin. Management maintained its guidance of 30% year-over-year revenue growth for this segment.
On the downside, weakness was ever-present in BlackBerry’s mobile solutions, or hardware, segment as the mere $105 million in revenue represented a 49% decline over the previous year. This was driven not only by a much lower number of devices shipped but also by a high-single-digit sequential decline rate in average sale price, or ASP, of the devices.
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