The first quarter earnings from BlackBerry (TSX: BB) sent the stock from $12 to sub-$10 for good reason: non-GAAP results hid many recurring costs. Markets did not get fooled with the costs and the slowing software sales. Until the company accelerates server software sales, the stock is "done" for now. Expect limited upside in the short-term.
BlackBerry reported multiple non-GAAP items that hid the true losses in the quarter. The items are:
$28 million charge for adjusting the debenture’s fair value
$22 million in amortization of acquired intangibles
$17 million stock compensation expense
$4 million in restructuring charges
$1 million for M&A costs
BlackBerry is not the only firm to exclude comp. expenses in GAAP numbers. Salesforce.com (NYSE: CRM) and many tech firms do this routinely. But CRM’s product is hot, so investors will allow for the charge. BlackBerry’s UEM server software, the back-end product that manages devices in the enterprise, is slowing.
On paper, the company said software and services sales rose 69% year-on-year and accounted for 89% of the revenue. But one third of the revenue came from Licensing IP. Due to new accounting rules (ASC 606), the company now forecasts software revenues growing between 8 – 10%. At that low rate, shareholders cannot justify a high stock price.
Takeaway: Speculate on BlackBerry stock, knowing the odds are high that the stock could fall further in the short-term. A full business rebound is at least a year away.
