Why Blackberry Ltd (NASDAQ:BBRY) Was Cut To A Sell By Goldman Sachs Group Inc

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Blackberry Ltd (NASDAQ:BBRY) had its stock rating reduced to “Sell” from “Neutral” yesterday by analysts at Goldman Sachs Group Inc (NYSE:GS). The smartphone maker’s price target was also cut to $9 as the analysts cited greater challenges ahead for the company. BlackBerry is struggling to reclaim its lost market share in the smartphone segment, while also angling for new growth in areas such as software and services.

In its fiscal year 2015, Blackberry Ltd (NASDAQ:BBRY) managed to live up to expectations by achieving breakeven status just as the CEO, John Chen, predicted. Shares of BlackBerry have surged about 60% since Chen took over the helm. In a recent letter to shareholders, Fairfax Financial Holdings, one of the largest investors in BlackBerry, cited that BlackBerry was on the right turnaround path. Prem Watsa, the CEO of Fairfax, said they will not push for a takeover of BlackBerry, given that they expected Chen to successfully turn around the company and make it profitable once again.

However, those sentiments are not shared by Goldman analysts, Doug Clark and Simona Jankowski. In a note, the analysts cited various aspects that they think won’t allow BlackBerry to achieve its dreams. The analysts noted that Chen has primarily relied on cost-cutting to try to turn around the company. However, the analysts said that the time had come for Chen to drive revenue, which is a more challenging task.

Far-fetched target

Blackberry Ltd (NASDAQ:BBRY) hopes to double its software revenue to $500 million in the current fiscal year, compared to the previous one. However, Goldman believes that the company can only manage to generate revenue of $426 million in the segment. The analysts cited that BlackBerry is poised to fall short of its software revenue expectation because of issues that include; low buying intention for its enterprise mobile solutions and competition in the space.

While Goldman expects BlackBerry to register an uptick in hardware sales, the segment is still soaked in losses, making it unable to contribute to profitability.

Larger loss predicted

Goldman noted that Blackberry Ltd (NASDAQ:BBRY)’s software business is growing slower than expected while the services business was declining faster than expected. As such, the analysts expect the company to post larger losses in fiscal years 2016 and beyond.

Goldman predicts a loss of $0.26 per share for BlackBerry’s fiscal year 2016. The consensus for the period is a loss of $0.12.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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