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BlackBerry management has a credibility problem, this investor says

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Canadian tech legend BlackBerry (BlackBerry Stock Quote, Charts, News, Analysts, Financials TSX:BB) has certainly delivered the goods to shareholders over the past year, serving up a double since last November. But not every investor is happy with the current picture. 

Count portfolio manager Stephen Takacsy in that camp. Takacsy bought BB and made money for his clients but he’s not seeing any reason to get in again.

“I’ll be honest, we got very lucky thanks to the Reddit crowd because Blackberry has constantly been disappointing on the results,” said Takacsy, president and CEO of Lester Asset Management, who spoke on BNN Bloomberg on Tuesday.

“We sold most of our shares at around $20 when it had that surge in January, but we haven’t bought it back. We think it’s too expensive right now. We’d buy it back if it went under $10,” he said.

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BlackBerry is hanging in there this year over the ups and downs of meme stock mania, with the stock still up almost 60 per cent year-to-date. It’s a confounding picture with BlackBerry: on the one hand, here’s a company whose focus on cybersecurity and connected tech seems to be right on the money as far as prevailing and current trends go, yet after years in the making BlackBerry’s comeback is now overdue, with the company seemingly finding new ways to disappoint on a regular basis.

Take its most recent quarter delivered in September, for instance, where the company scored a consensus beat on revenue at $175 million compared to analysts’ expected $164 million yet revenue was down big time on a year-over-year basis from $259 million 12 months ago. BlackBerry’s net loss was also bigger, coming in at $144 million compared to $23 million a year earlier.

Ongoing pandemic woes in the auto industry were partly to blame, although the company said the rise in usage and demand for cybersecurity products was a positive for the quarter, its second quarter fiscal 2022 for the three months ended August 31.

In his quarterly comments, BlackBerry CEO John Chen said there’s likely to be continued headwinds in terms of vehicle production related to the company’s QNX operating system as supply chain disruptions worldwide remain a problem. 

“In terms of outlook, we continue to see the past quarter as the low point, but significant headwinds are expected to continue into Q4 and — Q3 and Q4 and perhaps even beyond that, albeit with a sequentially decreasing impact. The impact of the chip shortage on QNX royalty revenue is expected to be buffer somewhat by ongoing strength in design activities. We are comfortable with the current IoT revenue consensus, meaning the full year revenue outlook remains unchanged,” said Chen in the quarterly earnings call.

And on BB’s cybersecurity segment, Chen said the market is now starting to recognize the advantages of BlackBerry’s products especially in relation to its artificial intelligence engine. Chen said the outlook for cybersecurity is “modest sequential revenue growth due to [our] subscription model,” with the full-year outlook remaining unchanged and calling for revenue at the lower end of the $495 to $515 million range.

“As in the previous quarters, we are seeing new malware and ransomware hitting the headline on an almost daily basis. Our AI engine, the most mature in the industry continues to provide zero-day prevention against the host of these threats. In the quarter, our product successfully brought new profile ransomware, such as Hive, LockBit, Ragnar Locker, and many more before they could do any damages,” Chen said.

“BlackBerry Cylance AI engine is firmly focused on preventing our customers on being breached, whereas some of the leading competitors instead focus on showing customer all the ways that system — on a different ways that their system could be accessed,” he said.

But Takacsy still thinks there are deep issues at play in the BlackBerry story, saying management’s moves have been questionable.

“The QNX operating system, of course, has been hit by the pandemic by lower auto production and the chip shortage, but Blackberry has been losing market share on their enterprise security software and on their cybersecurity business Cylance, which they acquired many years ago and immediately had to write off the goodwill,” Takacsy said.

“And so, management has a huge credibility problem when it comes to results, and the board, of course, has demonstrated poor corporate governance. As we’ve seen, a lot of big institutional shareholders have been complaining about that. So, I think they’re trying to improve that going forward,” he said.

“There’s also an IP licensing business that does have some value and we’ve been advocating for them to sell it. And I think the market has been waiting for almost a year now for some announcement. But BlackBerry is fully valued now,” Takacsy said.

About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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