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BlackBerry Eyes Long-Term Growth Despite Stiff Competition

We published an updated research report on BlackBerry Limited BBRY on Jun 6, 2016.

BlackBerry reported a narrower-than-expected loss in the fourth quarter of fiscal 2016. However, the company’s top line missed the Zacks Consensus Estimate. Notably, the company posted positive surprises in two of the last four quarters.

BlackBerry remains focused on improving its performance despite its operations in a highly competitive industry. The company expects to generate a positive free cash flow and adjusted EBITDA in 2017, as well as 30% growth in revenues from software and services.

BlackBerry has been eyeing revenue sources other than hardware to boost its top line.  A key focus in this regard is the company’ software business, revenues from which soared 106% in the fourth quarter is fiscal 2016.

Strategic Acquisitions

BlackBerry also undertakes strategic buyouts to augment growth in the software and services segment. Keeping in line with this, the company acquired U.K-based cyber security consultancy Encription in February. The company also purchased mobile security firm – Good Technologies – in 2015 to strengthen its position in the Enterprise Mobility Management service space. Another notable takeover by the company was that of emergency mass-messaging firm, AtHoc.

Product Launches

Furthermore, to target automotive and asset tracking industries, BlackBerry launched the Internet of Things (IoT) platform. Another major growth initiative by the company is the BlackBerry Enterprise Service 12 (BES12) solution. This cross-platform product, which is interoperable with Apple’s iOS and Google’s Android, provides flexibility, scalability, high security and cost-effectiveness to its customers.

Last year, the company also launched a 5.4 inch 4G Android device – Priv – to boost hardware sales. BlackBerry has also started shipping of its budget friendly full-touch Z3 smartphones to tap in to the high demand sector. Interestingly, Z3 has been jointly developed by BlackBerry and Foxconn with a target to supply cheaper inventories for the manufacturing of smartphones.

Headwinds

Despite foraying into the smartphones market with its new products, BlackBerry faces stiff competition from cheaper or more widely recognized mobile handset brands. Its late entry in adopting the Android platform continues to be a drag on revenues. Changes in its business model remain a concern as the company plans to consolidate its market share with a less attractive BB10 IS platform, which is supported only by four smartphone models  and caters to small customer base. BlackBerry’s licensing contract with T-mobile U.S. Inc TMUS, a leading U.S. carrier was not renewed. Adding to the woes, T-mobile plans to stop keeping the company’s phones in its stores.

However, we expect this Zacks Rank #3 (Hold) stock to witness an improvement if its new initiatives in the software and hardware segments pay off.

Stocks to Consider

Some better-ranked stocks in the telecom sector include Millicom International Cellular SA MIICF and NTT DoCoMo Inc. DCM. Both these stocks sport a Zacks Rank #1 (Strong Buy).

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