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BlackBerry Ltd.: Could There Be Some Surprises in the Upcoming Earnings Report?

Investors have been patiently and eagerly waiting for BlackBerry Ltd.’s (TSX:BB)(NASDAQ:BBRY) fourth-quarter 2017 (Q4 2017) earnings announcement due March 31 2017. The software and services firm is expected to release the critical figures before market opening.

Should investors expect some positive surprises this time around?

Possible surprises

This quarter might be the first of many positive cash flow quarters.

During the last quarter (Q3 2017), the firm burnt some US$220 million. This was at the backdrop of new investments in the Ottawa Innovation Centre for autonomous driving, the new Cybersecurity Operations Center for FedRamp in U.S., the US$70 million penalty on debt restructuring, as well as costs related to the winding up of the mobile phones manufacturing unit.

However, even after such uses of cash, management still promised a breakeven in cash flow terms for the full year. If we choose to believe these corporate insiders, then it’s possible that the coming earnings announcement may report a huge bump in cash flows to cover previous quarters’ gaps.

The company gave some promising marketing figures during the January 2017 analyst summit on which the CFO Steven Capelli pointed that BlackBerry had, for this fiscal year, added 390 new partners for a total of 1,192 to its go to market in the direct enterprise sales channel partner program.

This is a great marketing effort, and one that could have significantly added to the 23,700 enterprise customers figure by January 24, 2017. New clients may bring in more revenue and more cash flow to the firm.

It’s likely that cash flow may make a positive jump, but there are still some investments that continue to be made to grow the software-oriented business, and some huge operating expenses to be paid, too.

These consume cash.

So, it’s still possible that we may have another cash flow negative quarter, albeit with a lower negative number than the previous quarter.

I wish to see the net cash balance above US$1 billion though, as the cash reserve could keep the company operational for another loss-making year or two.

I also wish to see a reduction in operating expenses.

Another potential surprise could come from gross margins figures.

The software business model could continue with its buoyant growth momentum as witnessed in the last two quarters. High software margins could pull the corporate gross margins further up, and BlackBerry could report another record GAAP gross margin for the quarter.

Investor takeaway

We could witness a turning point in BlackBerry fortunes this year. If current software growth momentum could be sustained and operating expenses contained, BlackBerry could come into a growth path in three or so more quarters. The gross margins are good already, but operating expenses continue to mess up the bottom line.

If some significant royalties come through from BlackBerry’s mobile phone-licensing deals this year, and the autonomous driving experiment pays off by 2019 or so, then investors who manage to hold on to BlackBerry shares may be greatly rewarded.

Investing in BlackBerry remains highly speculative, though.

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