BlackBerry’s turnaround is tired, this investor says

BlackBerry’s turnaround. Has it stalled?

It’s been a rough couple of years for BlackBerry (BlackBerry Stock Quote, Chart, News TSX:BB) and although it showed some promise earlier in 2019, the stock is now hanging out in territory last visited over three years ago.

What’s the problem?

Lack of follow through, says Kim Bolton of Black Swan Dexteritas, who says that the market is now growing impatient with BlackBerry’s turnaround.

BlackBerry’s share price is up almost two per cent as of midday trading on Thursday, a welcome respite from continual decline of the past five months, which has seen BB go from a high of C$13.74 on March 29 to where it currently resides in the mid-to-low C$9.00 range. The drop may not seem earth-shattering but it comes on the heels of even greater declines over much of 2018 when the stock lost 31 per cent of its value.

CEO Chen says BlackBerry’s turnaround is complete

It’s a dismal situation for a stock and company that had shown so much promise as investors took to the story of the once-powerful phone maker getting up from the mat to reimagine itself as a software and security expert, complete with investments in cybersecurity and autonomous vehicles, two areas expected to be growing at healthy clips. But even as CEO John Chen has claimed the turnaround complete, investors are still waiting for the hard evidence, says Bolton, who spoke to BNN Bloomberg on Wednesday.

“They’ve done a lot of very smart things when it comes to [autonomous driving] and Cylance for the software side but they’ve lost the radar for the big asset managers out there. And it’s sort of in no-man’s land,” says Bolton, president and portfolio manager at Black Swan.

“I always did sort of buy it when it got down to this $8.50 level which is a bit of a base, but there’s just not enough interest and momentum by asset managers,” he says. “A lot of [analysts] if you go back over the last year were more of a Neutral stance and now more and more are going to a Sell stance, which is so unfortunate.”

BlackBerry’s latest earnings report is a case in point. The company delivered its fiscal first quarter 2020 in late June, featuring top and bottom lines that came in line with analysts’ expectations. On an adjusted basis, BlackBerry showed revenue of $267 million, up 23 per cent year-over-year, and earnings of $0.01 per share, whereas the consensus was calling for $265 million and $0.01 per share. (All figures in US dollars unless where noted otherwise.)

But the stock still dropped on the earnings, with the overall explanation being that the market was looking for better results from Cylance, the company’s major cybersecurity acquisition of this past year. As reported by Bloomberg News, BlackBerry’s Q1 revenue from its business technology solutions and enterprise software and services segment showed a drop of $11 million, falling from $147 million in the Q4 to $136 million, with the deficit likely coming from its enterprise software division. Revenue from Cylance, a $1.4-billion purchase, was $32 million.

“People were hoping Cylance would beat expectations more than it did,” said analyst Todd Coupland of CIBC to Bloomberg.