BlackBerry (BB) shares have been on a steady uptrend over the past month, rising some 15.5%, including 10% gains over the past week, thanks to a recent upgrade by investment firm RBC Capital Markets, noting that the company’s "valuation has normalized.” But how much can the shares rise amid the company’s seemingly lack of execution?
The Canadian software company is set to report fourth quarter fiscal 2022 earnings results Thursday after the closing bell. Aside from the execution challenges, including prolonged revenue declines, investors have also become seemingly frustrated with management's inability in recent quarters to generate much-needed cash from a patent portfolio sale. But with the stock priced at just four times forward enterprise value to revenue estimates, which is half the valuation of eight times to cybersecurity sector trades for, the risk-versus-reward is now favorable.
According to RBC’s Paul Treiber, “We believe that BlackBerry’s valuation now more appropriately reflects the company’s near-term fundamentals, opportunities, and potential risks.” While Treiber did upgrade the stock to Sector Perform from Underperform, it’s not exactly a full-blown endorsement. Treiber maintained his $7 price target. Nevertheless, with BlackBerry stock still down 20% year to date, BlackBerry has a lot to prove, namely whether it can finally grow revenue.
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. 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 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 7 cents per share, reversing a profit of 2 cents a year ago, while full-year revenue of $730.14 million would decline 20.6% year over year.
While there’s no question that BlackBerry has carved a solid niche within the security segment, the constant underperformance has raised doubts that the company has the right leadership to grow. In the most recent quarter, revenues came in at $184 million. While that did beat Street estimates by about $7 million, the average estimate was trending down during the quarter by more than $26 million since the start of the quarter.
What’s more, it still reflected revenue decline of $34 million year over year. The company continues to struggle in the Cyber Security which, despite the sequential revenue improvement, is still on the decline on a year-over-year basis. As noted, Licensing and IP revenues, the segment the company recently sold, continued to struggle. Investors will want to see improved trends in these areas, along with improved business and operating fundamentals to support the recent rise in the stock price.
As has been the case for several years, BlackBerry needs some positive news. The projected full-year revenue decline has worsened over the past three months. The company on Thursday 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.
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