Investors “too optimistic” on BlackBerry Ltd (NASDAQ:BBRY): Morgan Stanley


BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) stock dropped over 5% Wednesday. The sudden drop of the price is because of the “underweight” rating given by the Morgan Stanley analysts James Faucette, who feels that market and management are “too optimistic” on BlackBerry. The new target given on the stock is now $7.

BlackBerry stock hits roadblock

Facebook shares were doing really fine jumping to their highest level in 16 months last week helped by the plans of the CEO to win back core customers. But Morgan Stanley report dragged the share down as the analyst asserted that the management is too optimistic.

The reason why the company performed well last week was that the CEO John Chen reiterated that BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) will reach breakeven cash flow in the next fiscal year. He said during the BES 12 launch event that the company will focus on the top line, along with strengthening growing profit.

Analyst skeptical on targets set

Mr. Faucette’s main concern is that investor’s expectations are based on the targets that Chen expects to achieve in 2016 fiscal year, starting next March. For new software revenue, Chen expects to earn $250 million next year and another $100 million from the new services that will be offered through its free instant messaging app, BlackBerry Messenger.

Based on the target from Chen, analyst believe that BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) will have to retain its entire existing enterprise subscriber base, and will also have to increase the subscriber base significantly. Faucette notes that to hit the revenue targets Blackberry will need to reach between 8 million and 10 million paying enterprise subscribers and other 1 million to 2 million messaging subscribers by the end of the next fiscal year.

“We are skeptical that BlackBerry will be able to achieve that level of success, particularly with a new product platform, new pricing, new go-to market strategy, and with a still very damaged brand,” the analyst note.

More challenges

Along with this the company still struggling from its continued loss of high-margin revenues it generate from charging wireless carriers monthly fees for using its data network to ferry email and internet traffic to and from its handsets. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) reported that it earned $424 million in service fees last quarter, down from more than $ 1 billion per quarter three years ago.

In addition, the company is facing issues from the vast competition coming from instant messaging services outside Asia. The main rivals of the company are WhatsApp, Snapchat and Kik.