Why Partnering With Amazon Could Keep BlackBerry's Momentum Going
Now that BlackBerry Limited is fresh off a first-quarter earnings report which surprised nearly everyone, and showed that the company still has some life left, investors are likely wondering what's next. The company made measurable progress across its business, even in hardware, and will need to keep the momentum going to continue its turnaround.
Fortunately, the company has several promising developments in the pipeline, particularly when it comes to software and services. This will help it keep progressing going forward. One example is a new partnership with Amazon.com . This is very important to BlackBerry, since software and services represent the bulk of its business now. The new BlackBerry will likely be known much more for software and services than hardware, and the partnership with Amazon is a big step in that direction.
While it might be hard to believe, here's why you may actually have reason to be optimistic about BlackBerry's future.
Several initiatives showing progress
BlackBerry's quarter, while unspectacular on the surface, was an important indication that perhaps the floor is in. The company managed to stem the steep declines on the top and bottom lines that worried analysts and investors that the company was in real danger.
In all, revenue dipped just 1%, and BlackBerry turned a $23 million net profit thanks to significant cost cuts. BlackBerry reduced quarterly operating expenses by 57%, which boosted gross margin by five percentage points.
Other than cost cuts, BlackBerry did show progress in several key strategic initiatives. This was true even in hardware. BlackBerry recognized hardware revenue on approximately 1.6 million smartphones, which was 300,000 more than it recognized in the previous quarter.
Services are where BlackBerry really shined, and that area represents the best avenue for future growth since services make up more than half the company's total revenue. Combined with software, these two areas are where BlackBerry needs to keep focus.
A very exciting development is the budding partnership with Amazon that BlackBerry recently announced. Coming this fall, BlackBerry will partner with Amazon for mobile apps on BlackBerry 10.3, which will add more than 240,000 Android apps to the platform. The Amazon Appstore will be pre-loaded with the BlackBerry 10.3 operating system. This will go a long way in building a competitive application ecosystem for BlackBerry.
Last but not least, BlackBerry launched its mobile payment system BBM Money in Indonesia. BlackBerry is making a big push into the emerging markets, which represent a significant opportunity for growth. Separately, BlackBerry successfully launched the new Z3 device in Indonesia last quarter, with launches in 8 additional nations to come.
Balance sheet to remain strong
BlackBerry's balance sheet strengthened last quarter as well, which provides an important margin of safety. The company's cash balance increased by $429 million quarter over quarter, and now stands at $3.1 billion. However, it's worth noting that much of the increase was due to non-operational factors. BlackBerry received a tax refund of $397 and proceeds from real estate sales of $287 million. Focusing on its core operations reveals that BlackBerry actually burned through $255 million in cash.
Even so, BlackBerry's cash burn decreased by over two-thirds from the prior quarter. And, management doesn't foresee the company burning through too much more cash the rest of the year. Chief Financial Officer James Yersh stated in the conference call he doesn't expect BlackBerry's cash balance to drop below $2.5 billion this year, so the balance sheet should remain strong.
Don't write off BlackBerry
It might seem foolish (small 'f') to say it, but BlackBerry might have some life left. It's making an important shift in focus that could pave the way for a profitable future. There isn't much chance for BlackBerry to make a comeback in hardware, since it's likely a losing battle, at least as far as the United States is concerned.
But that doesn't mean BlackBerry is hopeless. The company still has an opportunity to become popular in hardware overseas. And, perhaps more importantly, the company is still a viable player in software and services. This is especially true now that BlackBerry has announced an exciting partnership with Amazon that will bring hundreds of thousands of new applications to BlackBerry's updated operating system. If the partnership gains traction, BlackBerry might just have a real future.
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The article Why Partnering With Amazon Could Keep BlackBerry's Momentum Going originally appeared on Fool.com.Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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