BlackBerry Ltd.'s new Passport smartphone is drawing mixed marks from reviewers, initial interest from fans and indifference from financial analysts.
Ahead of the Waterloo, Ont.-based company's second-quarter earnings on Friday, many analysts made little to no changes to their forecasts, which range from neutral to pessimistic, following Wednesday's launch of the passport-sized smartphone.
"It's probably too early to tell" if Passport will succeed, Cormark Securities analyst Richard Tse said in an interview, after reiterating his $11.50 (U.S.) price target and "market perform" call on the stock Thursday.
CIBC analyst Todd Coupland said in a note the stock "remains on our no fly list" with a target price of $6.25 – much lower than Thursday's close of $9.80 on the Nasdaq. "In our view, BlackBerry's turnaround has a long way to go and it is too early to state that this effort will stabilize device shipments and more importantly, service revenues," he wrote.
Many observers feel the Passport is a niche device that will have little impact on sales. Some expect better prospects for the "Classic," the company's revival of a popular older model coming this fall. "We believe the Passport does little to change the direction of the company," Citi analyst Ehud Gelblum said in a note. Many analysts forecast the company will earn around $4-billion in revenue in its current fiscal year and only slightly more the next year.
Chief executive officer John Chen has said BlackBerry needs to sell 10 million smartphones a year to break even and is open to abandoning the hardware business if it can't, in favour of other offerings, including security and device management software and services for corporate and government, or enterprise, users. Taiwanese contract manufacturing giant Foxconn Technology Group has agreed to make BlackBerrys and shoulder much of the business risk in exchange for some of the profit if BlackBerry sales bounce back.
BlackBerry is expected to report a second-quarter loss of 16 cents a share Friday on revenues of between $900-million and $1-billion. The company earns revenues primarily from selling devices and charging service fees to users.
While hardware sales have declined steeply in recent years, investors are most concerned about service revenues, which have been steadily declining and are set to dip by 11 per cent from the first quarter to about $460-million, according to the company. As those revenues (from fees the company collects from carriers per user of its BlackBerry service) drop, they wipe out much of the company's earnings power, as service fees carry much higher margins than handsets.
"Longer term, the ongoing services decline and BlackBerry's ability to offset with [other enterprise software] revenues keeps us on the sidelines," said Raymond James analyst Steve Li in a note, in which he maintained his $10 target price and Market Perform rating on the stock.
Mr. Chen has promised to stop the bleeding in services by finding new sources of revenues by catering to the enterprise users. One potential revenue source is a new program introduced with Passport, called Blend, which allows users to display the contents of their smartphone on any other computer screen, including products made by Apple.
The service will be offered to enterprise users for a fee. "BlackBerry's CEO's attempts to convince Enterprise CEOs and [chief information officers] to give BlackBerry a second chance is bearing some positive results," RBC Dominion Securities analyst Mark Sue said in a note.
BlackBerry recently completed a deep restructuring effort that slashed costs and put the company on a path to generate positive cash flows by the end of the fiscal year in February, 2015. "The improvements in the balance sheet and restructuring in the business is providing the challenged company much needed time to turn things around," Mr. Sue said.
Visit ReportonBusiness.com Friday morning for news on BlackBerry's second-quarter results, due for release at 7 a.m., and for ongoing coverage throughout the day.