BlackBerry Ltd. fell the most in almost two-and-a-half years after its quarterly earnings report showed surprisingly weak revenue from software, marring what was otherwise shaping up to be a banner year.
The Canadian company, which exited the hardware business last year, missed analysts’ estimates for total revenue, the majority of which is now made up of software sales. Revenue excluding some costs was $244 million in the fiscal first quarter compared with the average analyst estimate of $265.4 million.
The shares fell as much as much as 13 percent, to $9.65 in New York, the biggest decline since January 2015. Before the report Friday, the shares had gained more than 60 percent this year amid expectations of a successful pivot after exiting the hardware business that made it famous.
“They have a large share of that market and it could be coming under fire,” said John Butler, a senior analyst at Bloomberg Intelligence.
Chief Executive Officer John Chen insisted he would still hit his target of 10 percent to 15 percent growth in software and services in the fiscal year that ends next March. Revenue growth will increase through this year and come in stronger in the second half as the company’s software sales force grows, he said on a call with analysts.
“We just don’t have enough people working on more deals,” Chen said. “We just have to go off and work on more opportunities ourselves.”
Earlier this year things had seemed to be going well for the Waterloo, Ontario-based company as investors started treating BlackBerry like the growing software company it has turned itself into. An $814 million windfall awarded to end a dispute with Qualcomm Inc. over royalty payments and positive comments from short seller Andrew Left didn’t hurt either.
The Qualcomm payment bolstered BlackBerry’s cash reserves, which now stand at $2.6 billion. That means Chen could resume making acquisitions to bolster software revenue, a tactic that helped replace some of the company’s evaporating hardware sales over the last three years.
Some of that cash will go toward share buybacks, with BlackBerry authorizing TD Securities to buy back as much as 6.4 percent of the company’s circulating shares on its behalf. Buybacks have been part of Chen’s tool box in his bid to revive the company’s fortunes.
Chen spent much of the earnings call going over recent sales wins, including a deal to sell BlackBerry’s device management software to France’s central bank and a contract to install its “Radar” fleet tracking tech on some FedEx Corp. vehicles.
Licensing revenue was $32 million, compared with $25 million last year. Handheld devices revenue, which is made up of licensing agreements for the company’s phone brand to company’s like TCL Corp., was $37 million, compared with $152 million last year when the company still produced its own phones. Profit, excluding some items, was 2 cents a share, compared with the average analyst estimate of break-even, because of the large Qualcomm payment.
BlackBerry also re-organized how it reported revenue to reflect its current reality as a software company with a side business in licensing old hardware patents. The new software and services segment accounted for $92 million in revenue, up 12 percent from what would have been $82 million in the same quarter last year.
On a non-GAAP basis though, software revenue actually declined from the same time last year.
“Given the decline this quarter we’re going to have to have quite a meaningful re-acceleration over the next three,” Credit Suisse analyst Kulbinder Garcha said during the conference call.