BlackBerry is doing just fine, this observer says

Canadian tech company BlackBerry (BlackBerry Stock Quote, Chart, News, Analysts, Financials TSX:BB) delivered fiscal fourth quarter earnings this week, reporting a year-over-year drop in revenue as the software and security business continues to feel the pain of a slower turnaround in the auto industry. But all is not gloom and doom for the erstwhile phone maker, says BNN analyst David George-Cosh, who thinks BB’s steady progress in recent years bears consideration.

“This is a company that’s now just continuing to produce a very steady amount of cash flow. It’s not going to make those headlines that we all remember from ten years ago when it was the smartphone giant before it was usurped by Apple, but this is a consistent software company,” said George-Cosh, reporting on BNN Bloomberg on Wednesday.

“Will we see BlackBerry return to the days of yore? Probably not but this is a steady software business that’s doing quite well,” George-Cosh said. “A little bit of uncertainty with the long term on auto parts and auto supply on its QNX business, but that’s a $200-million a year business and it should do pretty well there.”

BlackBerry reported its fourth quarter fiscal 2021 on Tuesday for the period ended February 28, 2021, with the company showing revenue of $210 million, down from $282 million a year ago, with adjusted revenue of $215 million, down from $291 million. (All figures in US dollars except where noted otherwise.)

“This has been an exceptional year to navigate, however we are pleased with QNX’s continued recovery, despite new challenges from the global chip shortage,” said CEO John Chen in the company’s fourth quarter press release. “QNX now has design wins with 23 of the world’s top 25 electric vehicle OEMs and remains on course to return to a normal revenue run rate by mid-fiscal 2022.”

BlackBerry’s Q4 included a loss of $315 million with an EPS of $0.56 per share compared to a loss of $0.07 per share a year earlier. On an adjusted basis, BB’s loss was $0.03 per share. Analysts had been calling for revenue of $248.1 million and an adjusted loss of $0.03 per share.

BlackBerry’s share price certainly has had an interesting start to 2021, with the stock riding high in January off a December announcement on a collaboration with Amazon AWS on a connected car operating system to allow for in-vehicle applications and monetization.

The news helped BB finish 2020 even for the year, while the bigger jump came in mid-January as BlackBerry got caught up in the GameStop-led whirlwind of retail trading that momentarily buoyed a number of stocks favoured by DIY investors. BlackBerry soared from $8.44 to start the year to as high as $31.49 by January 27, only to just as quickly fall back to Earth, landing in more recent weeks in the $11-$12 range. BlackBerry dropped 10.5 per cent the day after its fourth quarter financials were released.

BlackBerry saw its Q4 Software and Services revenue drop to $165 million from $179 million a year earlier, while Licensing and Other revenue was $50 million.

Commenting on the way forward for BlackBerry, Chen said the company couldn’t provide a full-year fiscal 2022 licensing revenue outlook, as the company is in the midst of discussing the sale of its huge patent portfolio, although Chen did say he expects double-digit billings growth for both its cybersecurity business and BlackBerry Technology Solutions. That would help put fiscal 2022’s total software and services revenue in the range of $675 to $715 million, representing a nine to 15 per cent year-over-year growth rate.

“Despite the challenges, we had a strong year executing on our technology roadmap, bringing 59 new products to market. That’s up from 30 last year,” said Chen in the fourth quarter conference call.

“In particular, the Spark and Cyber suite has made significant step forward. We also make significant progress with strategic partnership, both on the technology as well as the go-to-market perspective. Our IVY partnership with AWS that obviously has always been a particular standout,” he said.

George-Cosh said the sale of BlackBerry’s patent cache is currently a big overhang on the company, where the company has said it’s in talks to sell its IP to an unnamed North American company.

“Until they actually facilitate that sale it will continue to overhang on the stock,” George-Cosh said. “Analysts expect the patent portfolio to be worth as much as $1.7 billion, however media reports suggests that it could be far less for Blackberry and a one-time lump sum.”

“The other thing impacting BlackBerry is its QNX sales, how the dearth of available semiconductor chips are impacting the auto supply, and that obviously is trickling down to BlackBerry [as] they make a little bit of a royalty for each car sold that contains their QNX software,” George-Cosh said.