“Two steps forward and one step back” is the story that continues to plague BlackBerry’s (BB) execution. Aside from execution challenges, including prolonged revenue declines, investors have also become seemingly frustrated with the management's inability in recent quarters to generate much-needed cash from a patent portfolio sale.
The Canadian software company is set to report first quarter fiscal 2023 earnings results Thursday after the closing bell. Having fallen 43% in six months and 61% over the past year, BlackBerry stock is currently priced at just four times forward enterprise value to revenue estimates which is half the valuation the cybersecurity sector trades for. And this puts the risk-versus-reward seemingly more favorable. But does that make BlackBerry a good investment in today’s market environment?
The company is in its eighth year under CEO John Chen's leadership, and the market is still waiting for quarterly and annual revenues to show improvement. The stock earlier this week rose more than 4% after it launched a new version of its platform designed to improve Google (GOOG , GOOGL) Android automotive systems. Aside from cutting costs when they are building in-vehicle infotainment systems, BlackBerry’s new update is said to simplify development and speed up bringing services online.
But how much of this will benefit the company’s top and bottom lines? While some might argue that BlackBerry’s valuation now more appropriately reflects the company’s near-term fundamentals, on Thursday investors will want to see improved trends in its Enterprise Software Services segment (its largest business) which has struggled for several consecutive quarters. The Internet of Things segment will also be an area of focus. With rising software content in vehicles, analysts will want to see whether BlackBerry can capitalize on average selling price per vehicle.
For the quarter that ended May, analysts expect BlackBerry to lose 5 cents per share on revenue of $159.72 million. This compares to the year-ago quarter when it lost 5 cents per share on revenue of $174 million. For the full year, ending February 2023, the loss is expected to be 21 cents per share, reversing a profit of 18 cents a year ago, while full-year revenue of $730.14 million would decline 20.6% year over year.
While the company has done a decent job carving a solid niche within the security segment, its constant underperformance has raised doubts that the company has the right leadership to grow. In the most recent quarter, revenues came in at $185 million, falling about 12% year over year, missing Street estimates by about $1 million. BlackBerry missed Q4 revenue expectations despite the fact that revenue estimates had come down significantly since the start of the prior quarter.
Not only did important metrics for its cybersecurity business showed more erosion, the company guided for essentially no revenue growth this year in that segment. The company's continued struggle in the cybersecurity segment is concerning. The management guided the cyber business to deliver billings growth between 8% to 12% for the year. Given the level of investments BlackBerry has made in this business, it should be growing at a rate of more than 20%.
Elsewhere, Q4 adjusted gross margin rate was 68%, compared to 73% a year ago. On the bright side, Q4 Licensing revenue was $11 million, beating expectation, while gross margin came in at 55%, slightly above estimates. Investors will want to see improved trends in these areas, along with improved business and operating fundamentals to reverse the slide in the stock price.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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