Can BlackBerry’s (BB) resurgence continue? And if so, is its recent momentum justifiable? Renewed interest in the so-called “meme stock” mania have sent BlackBerry shares surging some 377% from their March 2020 lows of $2.70 to a recent price of $13.41. Is now the time to lock in some profits or hold on for higher highs?
While the company has carved out a leading position for itself in the fast-growing Enterprise of Things market, revenue has been difficult to come by. The Canadian software company is set to report first quarter fiscal 2022 earnings results Thursday after the closing bell. The gains in BlackBerry stock, including almost 60% over the past month, have been further driven by the Reddit-induced short squeeze interest that sparked interest in other highly-shorted stocks like GameStop (GME) and AMC Entertainment (AMC).
With BlackBerry shares now up 102% year to date, the company has a lot to prove, namely whether it can finally grow revenue, which is expected to fall more than 20% in the soon-to-be reported quarter. The bulk of the decline is likely to come from its Licensing and Other segment revenue. Investors will want to see improved trends in its Enterprise Software Services segment (its largest business) which has struggled for several consecutive quarters. In other words, the market will want to see whether BlackBerry’s business and operating fundamentals can justify its stock performance.
For the quarter that ended May, analysts expect BlackBerry to lose 5 cents per share on revenue of $171.25 million. This compares to the year-ago quarter when earnings came to 2 cents per share on revenue of $214.09 million. For the full year, ending February 2022, the loss is expected to be 5 cents per share, reversing a profit of 18 cents a year ago, while full-year revenue of $824.43 million would decline 10.3% year over year.
Among the various software development areas, BlackBerry has focused on cybersecurity, automotive, IoT fields as well as its core operating system for cars called QNX. The company’s cloud-connected software platform called IVY has also shown some promise. But the revenue in these areas haven’t reached the level where it would justify the optimism in the share price at current levels. So without question the company’s valuation is the biggest story here.
What’s more, the fact that both revenue and profits for full-year 2022 are projected to decline on a year-over-year basis. For some context, at the current share price, BlackBerry has a market cap of $7.6 billion and traded at more than 12 times forward revenue two years from now, ending in fiscal year February 2023. Revenue would need to accelerate considerably for the stock to grow into its current valuation. And there hasn’t been any indication that revenue acceleration is possible.
In the fourth quarter, revenue of $215 million was down 26% year over year, missing consensus estimates by $33 million. The bottom line miss was also disappointing, coming in at a loss of 56 cents per share, below the 53-cent loss the Street expected. Even more concerning was the net loss of $315 million, worsening from $41 million a year ago. To keep the stock from falling back to earth, the company on Thursday must show meaningful improvements in revenue and profits to convince the market that BlackBerry can finally revert back to growth.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.