With BlackBerry (BB) shares down 32% over the past six moths, including a 22% decline in thirty days, investors have become seemingly frustrated with the company’s lack of execution, particularly management's inability in recent quarters to generate much-needed cash from a patent portfolio sale.
The Canadian software company is set to report third quarter fiscal 2022 earnings results Tuesday before the opening bell. There’s no question that BlackBerry has solid growth potential. But with its constant underperformance, doubt has been firmly planted as it relates to whether the company has the right leadership to grow its Enterprise Software Services segment (its largest business) which has struggled for several consecutive quarters, as has the QNX business. Investors will want to see improved trends in both areas, along with improved business and operating fundamentals to reverse the stock price decline.
While the company has carved out a leading position for itself in the fast-growing Enterprise of Things market, revenue have been difficult to come by. In the most recent quarter, Licensing and IP revenues plunged almost 90% year over year. Also disappointing was the $175 million in revenue that rose by a mere $1 million sequentially. These revenue results under CEO John Chen highlights the struggles BlackBerry continues to experience in its transition to become a prominent software and services specialist.
BlackBerry is in desperate need of some positive news. But that could come as early as this week, thanks not only to increasing cyber security demand, but also the reviving auto industry which should boost the QNX business. In other words, now that interest in this so-called “meme stock” — which once pushed the stock up over 100% year to date — has disappeared, the company has a lot to prove, namely whether it can finally grow revenue, which is expected to fall again this quarter.
For the quarter that ended November, analysts expect BlackBerry to lose 7 cents per share on revenue of $177.25 million. This compares to the year-ago quarter when earnings came to 2 cents per share on revenue of $224 million. For the full year, ending February, 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 projected full-year revenue decline has worsened over the past three months, driving the share price lower. This is disappointing given the modest improvements the company has sought to make, including areas such as cybersecurity, automotive, IoT fields as well as its core operating system for cars called QNX. What’s more, the company’s cloud-connected software platform called IVY has also shown some promise. However, revenues in these areas haven’t been impressive.
What’s more, both revenue and profits for full-year 2022 are projected to decline on a year-over-year basis. Revenue would need to accelerate considerably for the stock to become attractive again even at these depressed levels. In the second quarter, revenue of $175 million was down 34% year over year, though it beat consensus estimates by $10.72 million. The Q2 adjusted loss of 6 cents per share was also a penny better than expectations. But that’s where the positives ended.
Not only did Q2 profit margins decline, BlackBerry’s operating expenses grew, which further weakened the balance sheet, showing similar trends of previous quarters. To keep the stock from a further decline, the company on Tuesday must show meaningful improvements in revenue and profits to convince the market a sustainable path to growth still exists.
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.
Read Richard's Bio