BlackBerry: Buy or Sell?

Fresh off a beat of analysts’ expectations in its latest quarter, Canadian software and security name BlackBerry (BlackBerry Stock Quote, Charts, News, Analysts, Financials TSX:BB) looks to rebound from a dismal past 12 months as a publicly-traded company. And while BlackBerry the brand still has its supporters, the company’s shift from mobile phone maker to embedded tech for cars has yet to pan out the way many had hoped. 

BlackBerry finished last week up nine per cent, a welcome respite from the prolonged slump the stock has been in for over a year. BB’s first quarter fiscal 2023 results featured better-than-expected sales at $168 million versus the Street’s call for $161 million, while an earnings loss of $0.05 per share was in-line with the consensus estimate. 

At the same time, the $168 million topline was down from $174 million a year ago and down from $185 million for the previous quarter, with management pointing to a currently difficult macro environment for auto sales as one of the factors. BlackBerry said the pandemic, supply chain issues, the war in Ukraine and rising interest rates have all combined to stunt growth in the sector.

“On the supply chain front, the situation appears to be showing some signs of stabilization. While the economic issues will impact the overall auto market, demand for higher-end models and electric vehicle appears to be holding up,” said BlackBerry CEO John Chen in the first quarter conference call last Thursday.

On earnings, BlackBerry’s Q1 featured a non-GAAP operating loss of $27 million and adjusted EBITDA was negative $21 million, with the company pointing to a one-time litigation settlement of $165 million as being a drag on its bottom line. The settlement related to a class action lawsuit from 2013 where shareholders claimed the company mislead investors over sales projections for the BlackBerry 10 smartphone. BlackBerry agreed in April of this year to settle for the $165 million.

BlackBerry shares have been floating around the $7-$8 range for a couple of months and have now given up all the gains made in late 2020 and early 2021 where the stock was twice up around $20. BB had a nice lift to end 2020 due to the company’s announced partnership with Amazon AWS on the IVY platform, which the two companies have said could be the operating system standard for connected cars. 

But the real fireworks came in early 2021 when BlackBerry got caught up in the meme stock trend that saw perennial losers like GameStop and AMC get pumped up by retail investors hoping to start a new investment revolution. BlackBerry was enlisted and the stock went, very briefly, as high as $31.49 on January 27, 2021, before reality set in. There was another Reddit-inspired stock bubble in June of last year, with BB shares again flaring up and fizzling out. Over the past 12 months, BlackBerry is now down about 50 per cent.

Meme stocks aside, it’s the longer term view on BlackBerry that has investors worried, as the company’s plans to become an IoT and cybersecurity force to be reckoned with are taking longer to unfold than many would have hoped. 

Analysts have responded negatively, too, with both CIBC and TD dropping their price targets on BB after the fiscal first quarter release.

“This company got walloped by CIBC and TD in terms of reducing [their] price targets,” said BNN Bloomberg reporter David George-Cosh, speaking on a segment last Thursday. “CIBC is now giving BlackBerry a $5 per share price target down from $8, highlighting the fact that there are headwinds to growth in the coming year as well as lowering their expectations on their services and software revenue.”

“TD is going to $5 a share as well from $6.50 while maintaining a Reduce recommendation, saying that their sales force has seen some heightened churn due to the challenging labor market and that might actually hurt the company’s sales prospects going forward because essentially you need to retrain the sales staff to make sure that they can keep adding more customers to their top line,” he said.

“So, obviously a bit of a shaky quarter,” George-Cosh said.

By segment, BlackBerry’s first quarter saw its Cybersecurity gain a bit of ground, going from revenue of $107 million a year ago to now $113 million, while its IoT business was also up from $43 million to $51 million. The drag came from its Licensing and Other segment where revenue was just $4 million compared to $24 million a year earlier.

“The IoT business maintained its momentum of new design wins in rapidly growing core Auto domains,” said Chen in the quarterly press release. “The Cybersecurity business demonstrated solid traction in the market by recording double-digit year-over-year billings growth. Given its exciting market opportunities and synergies as the two markets continue to converge, the Company is well-positioned to invest and drive growth.”