“Meme stock" mania is over, and seemingly so has the interest in BlackBerry (BB). Shares of the Canadian software company have plunged more than 45% year to date and almost 50% over the past twelve months.
Meanwhile, if you’ve bought and held the stock in the past three and five years, you’re likely down 30% and 42% in both spans, respectively. Aside from the 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. But could the once-popular tech giant show it is ready to turn things around when it reports second quarter fiscal 2023 earnings results after the closing bell Tuesday?
Investors who have watched this dance of “two steps forward and one step back” aren’t holding their breath. Growth in the company’s Enterprise Software Services segment (its largest business) has been the major cause of the punishment and it doesn’t appear as if things will immediately improve. The company believes it has an enormous opportunity to service customers in need of device security as the number of connected devices continue to grow, especially given the rate at which cyberattacks on mobile and traditional devices have grown recently.
The management aims to hit revenue of $1.2 billion in fiscal 2027. Although that goal which implies annual revenue growth of 13%, would be phenomenal if achieved, the company has not shown it can make significant cybersecurity strides to capture that sort of market share. Nevertheless, with BlackBerry stock still down so much this year, the market will want to see whether its fundamentals can justify a higher price.
For the quarter that ended August, analysts expect BlackBerry to lose 7 cents per share on revenue of $165.8 million. This compares to the year-ago quarter when it lost 6 cents per share on revenue of $175 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.
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. While the company has done a decent job carving a solid niche within the security segment, the constant underperformance has raised doubts that the company has the right leadership to grow revenue in its Enterprise Software Services segment. Meanwhile, the Internet of Things segment has also underperformed.
In the first quarter, the company did beat on both the top and bottom lines with Q1 revenues of $168 million coming in more than $8 million ahead of analysts estimates. However, not only was the revenue total the lowest the company has reported in more than eight years, the beat was somewhat misguided as the company forecasted zero revenue in the licensing segment during this fiscal year, but delivered Q1 revenues of $4 million. While it was a pleasant surprise, the Street had not modeled for that.
Same for the bottom line, which due to drastically reduced estimates calling for a loss of 4 cents. Not only did important metrics for the Cybersecurity business showed more erosion as annual recurring revenue in Cybersecurity fell roughly $13 million in the quarter. That puts it $30 million lower from Q1 2022. While some might argue that BlackBerry’s valuation appropriately reflects the company’s near-term fundamentals, investors on Tuesday will want to see improved trends in these key 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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