By Alastair Sharp
TORONTO (Reuters) - Although BlackBerry Ltd <BB.TO> has extricated itself from the smartphone handsets that weighed on its recent fortunes, the Canadian firm faces a tough slog to convince skeptics it can return to its glory days through an enlarged software business.
The company, which will report fourth-quarter and full-year results on Friday, says it has no major gaps in its software portfolio, thanks to the integration of a string of recent acquisitions.
It concedes, however, that more work is needed to get those offerings into the healthcare and automotive industries and other sectors that it hopes will power future growth.
"The bottom line is: BlackBerry is a completely different beast than it was a decade ago," said Nicholas McQuire, a workplace IT analyst at CCS Insight, a consulting firm. "However, it still needs to educate enterprises, particularly prospects in markets outside its core regulated footprint on the 'new BlackBerry'," he said.
Investors are unsure how to value the company, waiting for guidance from Chief Executive Officer John Chen, who needs a late bump in sales to hit the 30 percent growth in software revenue BlackBerry targeted for its recently completed fiscal year.
BlackBerry's enterprise-value-to-forward-revenue ratio is 3.14, according to Thomson Reuters data, lower than the roughly 4.5 ratio enjoyed by Oracle Corp <ORCL.N> and Microsoft Corp <MSFT.O>, two of its closest peers now that Blackberry focuses on enterprise software.
The Waterloo, Ontario-based company is expected to barely break even in the fourth quarter and likely notch revenue of less than $1.4 billion in its fiscal year ended Feb. 28, 2017, according to Thomson Reuters I/B/E/S estimates. At its peak, the smartphone pioneer was raking in more than $5.5 billion a quarter.
Blackberry's Toronto-listed shares were trading down 0.4 percent at C$9.40, while the benchmark Canadian share index <.GSPTSE> was up 0.3 percent.
BlackBerry declined to comment ahead of its earnings release.
The redesigned company has gone from selling its own phones with the servers and software that manage them for businesses and governments to securing an array of rival devices and the information that flows to and from them.
CYBER SECURITY, AUTONOMOUS VEHICLES
It is also targeting the burgeoning but fragmented market to connect sensors and other devices and has invested in other potentially high-growth areas including cyber security consulting and autonomous vehicles. "It has pivoted in the right direction with some new and promising areas ahead of it, but these are nascent markets which will take time to materializes in its bottom line," McQuire said.
The company's 2015 purchases of Good Technology and WatchDox helped it secure a leading position in the enterprise mobility market, and its QNX industrial operating system is key to its self-driving vehicle ambitions. However, there is tough competition in these and other areas of interest.
"We have a no-moat rating for BlackBerry," said Ali Mogharabi, an analyst at Morningstar. "There's still a lot of uncertainty on how well they are going to progress in autonomous driving and other growth markets."
The company no longer has any responsibility for making or selling smartphones bearing its brand, after setting up late last year to take a cut on sales from the likes of Chinese smartphone maker TCL Communication, which will begin selling a BlackBerry-branded phone in April.
But given TCL is going to rely on the BlackBerry name to sell the KeyOne device, which it announced at a major technology conference last month, the separation may yet prove difficult.
Chen, who took over the helm of BlackBerry in late 2013, said in December the company would likely take another four or five quarters to halt the steady decline in its overall revenue, with software sales growth projected to slow to around 15 percent in the fiscal year that began in March.
"What would help is if these guys actually standardize the type of guidance and/or the detailed information they provide on their calls," Morningstar's Mogharabi said. "It's pretty tough to get a clear picture of where they are in the turnaround mode and the potential upside or downside going forward."
(Reporting by Alastair Sharp; Editing by Denny Thomas and Paul Simao)