BlackBerry (BlackBerry Stock Quote, Chart TSX, NYSE:BB) may have successfully pivoted away from smartphones and into software, but Christine Poole of GlobeInvest Capital Management says before investors start picking up BB stock they need to be asking one question: where will BB’s top line growth be coming from?
This week, BlackBerry CEO John Chen was at CES 2019 in Las Vegas as his company pushed its ‘BlackBerry Secure’ product branding, aimed at distinguishing BB through its track record on software and IoT security. The company doubled down on cybersecurity with its recent acquisition of Cylance, an Irvine, California, cybersecurity business, for $1.4 billion. (All figures in US dollars.)
Chen says his tenure at BlackBerry has so far been about righting the ship through a dramatic transformation from hardware to software.
“When I first joined five years ago, we owed people more than $1.4-billion, we didn’t really have cash and we were struggling to get cash flow,” Chen said. “So, people now ask me, ‘How are you guys doing?’ I say, ‘Well, we’re doing well enough to sit down and write a $1.4-billion cheque.’ In addition to that, we still have a billion dollars in the bank.”
But even with its IP and patent revenue and a growing customer base for its QNX platform, Poole says she remains wary.
“They have a lot of cash, and I think one of the avenues to grow going forward is to make software acquisitions, which they’ve been doing,” says Poole, CEO and Managing Director at GlobeInvest, to BNN Bloomberg. “[But] in terms of top line growth, there isn’t a lot of visibility as to what the growth will be, when it will come and when that starts falling to the bottom line in terms of earnings and cash flow. That’s the reason why we don’t own the stock.”
“The CEO has done a great job in transitioning to the software side but they have to grow more and I just don’t see the visibility in terms of what their growth outlook looks like over the next few years,” she says.
In its last quarterly earnings report on December 20, BlackBerry posted sales that beat the consensus estimate, coming in at $228 million versus the expected $215.7 million. BB also posted net income of $59 million, much better than a loss of $275 million a year earlier. Yet in its pivotal enterprise software and services segment, the company posted revenue of $98 million for the quarter, down 7.5 per cent year-over-year.