BlackBerry: A Year In Review and A Forecast from Forbes

BlackBerry: A Year In Review

Can BlackBerry Be The Comeback Kid?

For years the market has pronounced the death of BlackBerry. As another year comes to a close, I find myself reflecting on what has transpired with BlackBerry and the mobile industry. The name BlackBerry was synonymous with mobile phones, keyboards and email. Today, some of these elements still hold true. In a market where all smartphones look similar, BlackBerry returned to its signature physical QWERTY keyboard on the recently released Classic and also offered a keyboard on a square shaped phone called the Passport. I had the opportunity to use the Passport and appreciated its screen size and keyboard.

Yet, the mobile market has evolved and so to has BlackBerry. It would be foolish to think of BlackBerry as solely a mobile phone manufacturer. It’s clear that phones are a part of its vision but not the entirety of its vision. Smartphone sales won’t be the linchpin for a market turnaround.

A Year of Big Announcements

For a theoretically dying company, BlackBerry has been very busy. It returned to its roots as an enterprise company and strengthened its position as a security company. It’s defining a path to evolve from a hardware company to a software and services firm. Let’s recap a few of BlackBerry’s accomplishments over the past year. The company:

Bolstered its consumer app story via a partnership. One of the big knocks against BlackBerry (and Microsoft for that matter) was its lack of consumer mobile apps. The ability to run Android apps on a BlackBerry has lessened this concern. To further alleviate this problem, BlackBerry struck a deal with the Amazon Appstore to make it easier to download apps. It also expanded its enterprise focused mobile application ecosystem through partnerships with Bloomberg LP, Box, CellTrak, Cisco, Entrust, SAP, and others.
Made a significant play for the enterprise mobile management market. EMM is a critical part of any enterprise mobile strategy. BlackBerry was known for management of its devices but needed to offer these services across a wider range of mobile operating systems. The company offered cross-platform mobile device management in BES12. It also inked deals with BrightStar and Ingram Micro to distribute BES12.
Bolstered its security across all product categories from phones through software. It purchased Secusmart to provide additional voice and data encryption and anti-eavesdropping solutions. It acquired Movirtu, a Virtual SIM platform that allows employees to have two phone numbers (read split between corporate and personal use) on a single device. It announced BlackBerry Blend for the enterprise which makes it possible for employees to securely accessing personal and work data from their BlackBerry smartphone on any desktop or tablet. It also offered Enterprise Identity by BlackBerry, VPN Authentication by BlackBerry, and BBM Protected (for Android, BlackBerry and iOS platforms). In general, the company has been heavily focused on providing a wide range of security solutions.
Added new partners. In a surprise move, BlackBerry partnered with Samsung to deliver richer mobile security for Android. It also signed a strategic agreement with Salesforce.com to connect Salesforce.com customer relationship management (CRM) apps and platforms to BlackBerry’s EMM solution.

These are just a selection of the company’s announcements. Overall, it was a good year for BlackBerry. The company invested heavily in developing and acquiring solutions to meet enterprise mobility demands. It also quelled fears that it would run out of cash by effectively managing its supply chain, inventory, and expenses.

While it still declined in smartphone market share, phones aren’t the future lifeblood of the company. (In fact, it’s hard for anyone except Apple and Samsung to earn a living at making phones.) I expect smartphones will become just one piece of an integrated, highly secure portfolio that includes software and services. A business customer can either purchase these devices as part of the holistic solution or simply choose to use the software and services.

As I look around the globe, the studies from Lopez Research highlight that companies are reevaluating BYOD. They’re still offering BYO program but many are also considering purchasing devices for their employees (especially for tablets and next generation PCs). In certain areas, specifically regulated and security conscious industries, BlackBerry could see new device purchases as the corporate-liable market regains steam. For example, Mackenzie Health, a regional healthcare provider serving a population of more than half a million people, announced that it will use the BlackBerry Classic and BES12. But the real win for BlackBerry will be in providing new security and identity/authentication services and management for non-traditional devices, such as IoT.

In the Long Run, BlackBerry Is A Software Company

While I’m certain that BlackBerry bashing will continue, BlackBerry has survived yet another year and in far better shape than any of us had expected. It’s stabilized and proven that it can shift its focus to upcoming growth markets such as security, identity and the Internet of Things. The challenge in the coming year is growth as a software company. This is no small feat given that almost half of BlackBerry’s revenue comes from hardware sales. It’s also not easy to grow into a software behemoth. For example, it took Salesforce.com years to become a software powerhouse. It’s not impossible. It just takes time and the financial market is an unforgiving place.

This will be a multiyear journey for BlackBerry. The market should expect BlackBerry’s revenue to take a hit as it manages this transition. With careful money management, the company should the cash ($3 billion) to navigate the transition to a software company. Businesses should evaluate BlackBerry based on its stated direction and execution against that vision. This year has been a good start.

Maribel is the founder of Lopez Research LLC, a market research firm focused on mobility. She’s also the author of the Wiley book “Right-time Experiences: Driving Revenue with Mobile and Big Data.”

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Oracle and FedEx tipped for Wednesday releases

Wednesday – Oracle

Last quarter Oracle’s (ORCL) long serving frontman Larry Ellison stepped down from his role as CEO and appointed 2 co-CEO successors. Heading into Oracle’s first quarter in the post-Ellison era Estimize community members are expecting the technology company to continue growing steadily and slightly outperform Wall Street’s earnings expectations.

Wednesday Estimize contributors are looking for a 1 cent gain in earnings per share while year over year revenue rises 3%. These results would maintain Oracle’s rate of sales expansion over the past 5 quarters and represent a slowing of profit growth to a rate between 1% and 2%.

Wednesday – FedEx

At one point this summer crude oil was trading at over $100 per barrel. As we enter the final stretch of the year that price has collapsed to just $56. As a major player in logistics FedEx’s (FDX) financial performance is greatly impacted by the price of oil, falling gas prices throughout the fall could provide FedEx an opportunity to post gains to its bottom line.

Over the past 3 months EPS estimates and revenue projections from both Estimize and Wall Street have been rising. With the final picture clearing up the Estimize community’s EPS forecast is settling at $2.16 per share, 2 cents lower than the Wall Street consensus, but still an impressive 38% higher than the number FedEx reported in the same quarter of last year.

On the top line Estimize analysts are calling for $11.99 billion which is marginally higher than Wall Street’s prediction and would mark a 5% improvement from last year’s total.

Upland Software : NASDAQ BUY  Target: US$15.00

UPLD : NASDAQ 

US$12.10 BUY 
Target: US$15.00 

COMPANY DESCRIPTION:
Upland Software is a software consolidator that provides
a suite of cloud-based applications for Enterprise
Workforce Management. The company was founded in
2010 as Silverback Acquisition Corporation and is
headquartered in Austin, Texas.

Technology — Enterprise Software — Software as a Service
BEEN THERE, DONE THAT: ACT 2 OF A SUCCESSFUL TEAM, THIS TIME IN SOFTWARE; INITIATE AT BUY
Investment thesis
Upland is a software consolidator in the enterprise work management space
that looks to us to be sufficiently inexpensively valued that the stock has the
potential to be quite rewarding over the long term. We are initiating coverage
with a BUY rating and a $15.00 price target.
Investment highlights
 What they do. Upland provides a cloud-based work management software
platform that enables businesses to plan, manage and execute projects and
tasks. The suite of enterprise work management applications enables
companies to better optimize the allocation and utilization of their
workforce, time, and money. The firm has more than 1,200 customers of
varying sizes in 50 different countries.
 Growth via M&A, but this team has successfully run this playbook before.
CEO Jack McDonald and CFO Mike Hill have successfully executed the
consolidation strategy before as the executive team at Perficient (PRFT :
NASDAQ), an IT services firm. They have proven themselves to be
disciplined acquirers and have identified targets, this time in the software
market, that go largely unnoticed by other potential acquirers.
 Target market upgrading from legacy or siloed apps. Upland’s suite of
software products addresses a market that is currently dominated by
legacy system software and/or ad hoc spreadsheet-based processes. This
market is moving its processes to the cloud and Upland looks well
positioned to benefit from this upgrade cycle in years to come.
 UPLD shares are relatively inexpensive. The stock is currently valued at
2.3x EV/revenues based on our C2015 estimates, which is reasonably
inexpensive by most standards and a discount to our assembled comp set.
With disciplined M&A execution and moderate organic growth, there is a
legitimate case for multiple expansion in the future.

Autodesk BUY

ADSK :
Update
NASDAQ : US$58.41 BUY 
Target: US$70.00

COMPANY DESCRIPTION:
Autodesk is a global design software company that sells highfunction,
low-cost 2D and 3D computer-aided design (CAD)
applications. The firm also provides visualization and simulation
tools, which in conjunction with the company’s design apps,
enable customers to experience their ideas early in the design
process through the development and analysis of virtual
prototypes.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Applications
SETTING THE STAGE FOR A MULTI-YEAR TRANSITION TO SUBSCRIPTION WITH
ANOTHER SOLID PERFORMANCE
We have long argued that ADSK has the best, broadest suite of design, visualization,
simulation and collaboration tools of any firm in its space. The transition to subscription is
a means to help customers cost effectively access this suite with more alacrity than we’ve
seen in past years. This should put Autodesk in a very good position in 3-4 years. In the
short-run, the firm’s results were quite good. ADSK remains our favorite large cap GARP
stock. Reiterate BUY.
 Bullish items. Material billings upside with 25% growth in the quarter; all three major
geographies grew in the double digits on a constant currency basis; the number of
transactions >$1M grew by nearly 60% and the value of these deals increased over
200%; ADSK reported 121k net subscription additions (including 25k from Delcam),
well ahead of initial expectations, and increased guidance for this metric.
 Bearish items. Operating margins under near-term pressure driven by Delcam
dilution and higher incentive comp (driven by strong billings); strengthening dollar
will be a headwind to reported revenue growth; very limited visibility into the pace of
the perpetual license wind down, which will muddy consensus forecasts.
 The numbers: another good print. Autodesk reported Q3/15 revenue and non-GAAP
EPS of $618M and $0.25, which were respectively $17M and $0.02 ahead of our
estimates. Revenues were up 12% on a constant currency basis in the quarter and
non-GAAP operating margins were 13.0%. Calculated billings were $643M, which
was up 25% y-o-y and nicely ahead of our $539M estimate.
 Outlook:

Guidance for revenue, billings, and subscribers all inch higher. ADSK now
expects F2015 calculated billings to fall in the 15-17% growth range, which is well
ahead of the firm’s targeted 12% CAGR through F2018. We have adjusted down our
F2016 estimates as we are now forecasting the transition to subscription to have a
slightly more negative near-term impact on reported growth and profitability (which
we think could be even more pronounced in F2017 as the firm discontinues perpetual
licenses). We would remind investors that we will evaluate ADSK’s execution on
metrics like billings growth, subscriber count and cash flow during this transition.

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Splunk : Update Raising Target Price

SPLK : NASDAQ : US$64.94

BUY 
Target: US$80.00 

COMPANY DESCRIPTION:
Splunk software collects and indexes machine-generated big data
coming from the websites, applications, servers, and mobile
devices that power business. The firm’s software enables
organizations to monitor, search, analyze, visualize and act on
massive streams of real-time and historical machine data. Splunk
is headquartered in San Francisco, was founded in 2003 and has
been public since April, 2012.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Infrastructure

AS SOLID AS EXPECTED. MOMENTUM WARRANTS PREMIUM VALUATION.
It is quite clear to us that investors are shifting money back into business software and
that the investments are tightly targeted toward perceived quality names. We strongly
believe Splunk is one of the best-in-class systems software firms, and arguably one of the
most promising companies in the broader software space. Obviously, SPLK is expensive,
but in software stock investing, execution trumps valuation for long periods of time. We
expect to see SPLK shares higher in three months, six months and a year. BUY.
 Bullish items. A larger revenue upside than last quarter. Product and use case
momentum. Major wins in Public Sector, Sporting Goods, Healthcare, Education and
Telco. Broader use cases for stream wire data. Sales restructuring by functionality
generated strong wins in security. Real-time data and analytics now deployed in
sports stadiums.
 Bearish items. Frankly, not much. We would like to see continued progress toward
the high end of 25-35% ratable revenues as a percentage of total revenues.
Operating margins were guided to be roughly flat next year, although we believe
there is upside to margin assumptions if revenues upside a bit. Finally, the obvious –
SPLK is highly valued at 13x and 10x our C2015 and C2016E EV/revenues.
 Sales excellence. The call had a large focus on continued strong sales performance
with 500+ new customers added, 290 orders above $100k, positive data points from
the segment-focused model, more than 70% of bookings from existing customers,
2/3rds of upsells from horizontal expansion and the largest ever transaction for
cloud (7 figures). The list goes on, but ultimately shows how SPLK’s sales organization is firing on all cylinders and a major reason for the company’s growth.

 Guidance update to bring positive revisions. Management increased revenue
guidance for the full year by $13.5M at the midpoint, mostly reflecting the $10M
beat in Q3. Operating margin guidance at 1-2% for the full year was increased from
1%. The company also released initial F2016 guidance for revenue of $575M. While
possibly still conservative, implying 31% growth over F2015 guidance, it was above
both our estimate and consensus, which should bring about positive revisions to
forecasts.

We raised our F2016 revenue estimate by $21.5M to $580M

Five9

: NASDAQ : US$4.45
BUY FINV
Target: US$7.00

COMPANY DESCRIPTION:
Five9 provides cloud-based software solutions for contact
centers. The company’s solutions help call centers
improve business dexterity and reduces the complexity of
contact center operations, while also significantly
reducing costs for the firm. The suite of applications
enables a firm to provide a breadth of call center
functions, including inbound, outbound, and blended
solutions. Five9 was founded in 2001 and is
headquartered in San Ramon.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software– Software as a Service
A SOLID QUARTER; SUFFICIENTLY INEXPENSIVE TO KEEP A BUY RATING
Investment thesis
Following a June quarter earnings shortfall due to the drop-off of call volumes as
scheduled Obamacare signups ceased, Five9 had something to prove to investors.
The firm took the first step of what we hope is many more consistent “meet or beat”
quarters needed to give investors confidence about future execution. At this
juncture, with a modicum of execution, we believe FIVN shares should provide
above-market returns. We have retained our Buy rating.
 A good bounce-back –upside across the board. FIVN reported Q3/14 revenues
and Adjusted EBITDA of $25.9M and loss of ($5.0M), which were respectively
$1.4M and $2.6M ahead of our estimates. Revenue growth was 23% in the
quarter, despite headwinds of the healthcare segment slowdown noted last
quarter, and FCF losses of ($7.9M) were $4.4M ahead of our estimate.
 Enterprise bookings remain healthy. Five9 had another record bookings
growth quarter; management suggested that Enterprise bookings have
advanced in-step with sale rep hiring that has paced in the 30-40% growth
range (SMB hiring has been closer to 10%). This quarter was highlighted by a
several hundred seat replacement of Avaya/Cisco/Aspect at a large pharma
company, a senior living referral placement service with ~400 agents, and a
nationwide energy company that came in through the Salesforce.com channel.
Dollar-based retention was 97% in the quarter, which is consistent with C2013
levels and down marginally from 98% in Q2/14.
 Outlook: a slight increase,

Q4 should be a bottom in growth. FIVN laps a
difficult Q4 compare against a 2013 period that saw heavy ACA call volumes,
but the December quarter should mark a bottom in growth declines at ~15%,
according to our estimates. We have slightly increased our C2015 projections
and are forecasting 20% revenue growth and more than 500 bps of EBITDA
margin expansion (~19% EBITDA margin losses). We believe there remains an
upward bias to our current growth assumptions.

Chen’s Letter To Blackberry Fans- old and new

BlackBerry* (BB : TSX : $11.78), Net Change: -0.14, % Change: -1.17%, Volume: 2,293,041
BlackBerry* (BBRY : NASDAQ : US$10.52), Net Change: -0.13, % Change: -1.22%, Volume: 8,159,305

John Chen, CEO of BlackBerry,

 

wrote an open letter to current and former BlackBerry users

hoping to create some buzz for the company’s “new/old” BlackBerry Classic device, set for release later this year.

Here are some of the more notable lines from his letter:

“To our loyal (current and former) BlackBerry users: BlackBerry is driven by an
urgent, obsessive focus on what matters: you. When we lose sight of what you want and you need, we lose you. It’s tempting in
a rapidly changing, rapidly growing mobile market to change for the sake of change – to mimic what’s trendy and match the
industry-standard, kitchen-sink approach of trying to be all things to all people. But there’s also something to be said for the
classic adage, if it ain’t broke don’t fix it. BlackBerry Classic reflects that. It is classic BlackBerry – complete with a top row of
navigation keys and a trackpad. It’s the device that has always felt right in your hands and always felt right in your busy
day…Innovation is a word that gets used too often and carelessly. Innovation is not about blowing up what works to make
something new – it’s about taking what works and making it better…You don’t reinvent yourself every day; you take what you
learned yesterday and sharpen it today. You drive change – often on your terms, but sometimes not. That you keep going
regardless is what distinguishes you as a grown-up. You’re in it for the long haul. So is BlackBerry. The things you remember
about BlackBerry that made you better are better than ever with BlackBerry Classic. BlackBerry Classic is for you, as is
everything we do every day.“

Chen’s complete letter can be found here: http://blogs.blackberry.com/2014/10/classic-john-chen/

Splunk – Analyst Day Update Target Price $68

SPLK : NASDAQ : US$57.25
BUY 
Target: US$68.00

Technology — Enterprise Software — Infrastructure
ANALYST DAY TAKEAWAYS: STILL PLENTY OF ROOM FOR GROWTH

 
With the 26% increase in SPLK shares since the firm last reported results at the end
of August, the stock is again sporting a top decile valuation, at more than 11x
C2015E EV/revenue. While this may be hard for some to stomach in today’s skittish
tape, we continue to believe that continually increasing use cases will drive capacity
expansion (and revenue growth) beyond what current estimates capture. An upside
estimate bias combined with the scarcity value of being the only public company, big
data pure play on the “Internet of Things” warrants a premium valuation. Our call on
SPLK continues to be that we anticipate revenue growth to more than outpace a
gradual multiple compression so that investors can expect 15%+ gains over the next
9-12 months. Reiterate BUY.

 Analyst day.

On Tuesday SPLK hosted an analyst day in conjunction with its 5th
Annual Worldwide User’s Conference in Las Vegas.
 Splunk Enterprise 6.2. From a product standpoint, news centered on the firm’s
end of October release of the latest version of its machine data analytics
platform. Highlights include: enhanced event pattern detection to make the
software more intuitive to less technical users, simplified onboarding of any
machine data, and efforts aimed at reducing total cost of ownership through
increasing concurrent user capacity and eliminating shared storage
requirements (reducing underlying infrastructure investments).
 Evolving to a segment-focused sales model. This area of continued investment
will focus on augmenting normal field reps with subject matter and industry
vertical experts – not only will this help to drive new customer adoption, but it
should also increase horizontal expansion (i.e. new use cases) within the firm’s
nearly 8,000 customer installed base.

 What’s it mean for the numbers?

An increase in ratable bookings, while tough
to predict in the near-term (~25-35% of deals, up from 10-20% at the time of
IPO), will drive improved revenue visibility over time. Longer-term, SPLK
continues to manage the business towards a 20-25% operating margin, the
timing of which will be determined by the pace of top line growth.

Avago Technologies Limited iPhone Upgrade Target price $97

AVGO : NASDAQ : US$83.47
BUY 
Target: US$97.00

COMPANY DESCRIPTION:
Avago Technologies Limited is a designer, developer and
global supplier of analog semiconductor devices. Avago
offers products in three primary target markets: wireless
communications, wired infrastructure, and industrial and
automotive electronics. Applications for Avago products
include smartphones, connected tablets, consumer
appliances, data networking and telecom equipment, and
enterprise storage and servers.

Technology — Communications Technology — Semiconductors
RAISING ESTIMATES BASED ON STRONG IPHONE 6 CONTENT SHARE AND INCREASED IPHONE 6 ESTIMATES
Investment recommendation: Based on our analysis, industry
conversations, and recent iPhone 6 teardown reports, we believe Avago has
roughly doubled its dollar content in the recently launched iPhone 6/6 Plus
smartphones versus the iPhone 5s/5c models and has the highest RF dollar
content share among the RF suppliers. With our recent surveys indicating
extremely strong demand for the new iPhone 6 products, we anticipate very
strong Q4/14 iPhone sales and high-end smartphone market share gains for
Apple versus high-tier Android OEMs, particularly Samsung. Given Avago’s
strong dollar content in the new iPhones and our recently raised iPhone
estimates, we are raising our Avago estimates. We reiterate our BUY rating
and raise our PT to $97.
Investment highlights
 Our recent surveys and analysis indicate very strong iPhone 6 demand,
and we anticipate a record iPhone 6 upgrade cycle. Please see our
separate Apple note, published Sept. 22, titled “Monthly surveys
indicate record iPhone 6 upgrade cycle, strong market share gains,” for
our updated iPhone estimates.
 We estimate the RF front-end content in the iPhone 6/6 Plus increased
to roughly $15.25-15.50 per device versus $11.25-11.50 in the iPhone
5s/5c models due to increased LTE band support and features such as
envelope tracking and carrier aggregation. Due to the increased
number of higher-frequency bands supported that require FBAR filters,
we believe Avago increased its RF dollar content to roughly $6/iPhone 6
models versus roughly $3 in the iPhone 5s/5c.
 While we believe Avago has growing dollar content in other flagship
Android smartphones such as Galaxy Note 4, Avago has stronger dollar
content share in the iPhone 6 devices given Android smartphones tend
to support more regional LTE SKUs. Therefore, we believe Avago will
benefit from strong iPhone 6/6 Plus sales despite our recently lowered
Android estimates due to share losses to the iPhone 6 products.
 Given these trends, we raise our F2014/15 Wireless business sales
estimates, resulting in our F2014/15 pro forma EPS estimates
increasing from $4.63/$6.35 to $4.65/$6.45
Valuation:

Our $97 price target (was $95) is based on shares trading at
roughly 15x our F2015 pro forma EPS estimate.

Oracle : Analyst Day Update

ORCL : NASDAQ : US$38.27

BUY 
Target: US$48.00

COMPANY DESCRIPTION:
Oracle develops, licenses and services database and
middleware software, applications software, and
hardware systems worldwide. The firm is the world’s
second largest application software firm, and a top five
systems vendor. Oracle was founded in 1977 and is
headquartered in Redwood City, CA.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Infrastructure
A MYTHBUSTER-THEMED ORACLE ANALYST DAY
Investment thesis
Our view on Oracle is simple: the company is not as troubled as the stock’s
valuation reflects. There are enough good things – new products, new
markets, new business models – coming down the pipe that we expect ORCL
shares to see a 1-2 multiple point expansion over the next year, which implies
10-20% upside from here. For a large cap stock, that is more than sufficient to
justify our BUY rating.
Investment highlights
  Oracle’s analyst day as part of its OpenWorld
User Conference. A couple hundred financial types were in the room.
 Incremental takeaways. The firm outlined and explained multiple
attributes that are better than consensus opinion – in other words, Oracle
was busting myths. The firm’s near-term ARR cloud pipeline tops $2
billion and is growing 30%+, meaningful upgrades in the firm’s core,
highly profitable database are on tap, and financial engineering in terms
of share count repurchases will remain material and fairly aggressive.
 Why the stock works. One way to make money in stocks is to buy shares
of companies on which investors soften too bearish opinions. This is the
crux of our BUY rating on ORCL. Yes, Oracle has vibrant competition, but
the firm simply is not as endangered, at least in the next year or so, as
hyperventilating cloud competitors assert. We have seen meaningful
rallies for Microsoft and HP as investor perception went from dire to at
least neutral. We believe a similar transformation awaits ORCL shares.
Valuation and price target
Our unchanged $48 price target is based on a 13x multiple applied to our
F2016 non-GAAP EPS estimate of $3.26 plus approximately $5.00 in
prospective net cash per share