BlackBerry (BBRY) is rapidly evaporating as a company, but apparently that doesn’t mean BBRY stock can’t whip up a rally or two.
Indeed, BBRY stock jumped today after BlackBerry swung to a loss that was much narrower than Wall Street was expecting.
This is what it has come to with the has-been smartphone maker. BBRY is deep in the red and quarterly revenue dropped below $1 billion for the first time since 2007.
Geez … was it really just four years ago that BlackBerry recorded record-high quarterly revenue of $5.56 billion?
Sadly, yes. But hey, BBRY is still alive, independent and not bleeding out … at least not at quite the rate the market and analysts were projecting. That counts as a reason to celebrate when it comes to BBRY stock, even if it’s just for a day.
Make no mistake, though: BlackBerry stock is a trade. It’s not a trend. It’s not an investment. It’s a trade.
BBRY is still in big trouble, and the endgame is anything but clear.
BlackBerry reported a fourth-quarter net loss of $423 million, or 80 cents per share of BBRY stock. In the year-ago period, BlackBerry still was profitable, generating income of $98 million, or 19 cents a share.
Here’s the good news, at least as BBRY stock is concerned: After excluding restructuring charges and other items (as analysts do), BBRY posted a net loss of just 8 cents a share when the Street was modeling a loss of 55 cents.
That’s a big beat.
The better-than-expected bottom line took the market’s mind off the fact that revenue missed estimates by a significant margin. Sales fell to $976 million from $2.68 billion a year ago. Analysts on average had project revenue of $1.11 billion, according to Thomson Reuters.
This is a terrible quarter by any measure, but expectations are everything on Wall Street, and an earnings beat usually helps a stock jump.
Too bad it will take more than a surprise quarter or two to deliver sustained upside in BBRY stock.
BBRY Can’t Cut Its Way to Growth
It’s one thing to spruce up the bottom line by cutting costs. It’s quite another to grow the company by creating demand for BlackBerry smartphones — perhaps an impossible task now that Samsung (SSNLF) and Apple (AAPL) dominate the market.
A few years ago, BlackBerry had 20% of the global smartphone market.
Today, it holds less than 1%.
An adjusted net loss of 8 cents isn’t that far from breakeven, and some analysts think expense reduction can lead BBRY to reach that line by the end of next year — but if BBRY is to deliver top-line growth, it’s probably not going to come from sales of smartphones.
Large screens are in, which means keyboards are out, especially now that apps like Swype and SwiftKey make typing on a touchscreen fast and accurate.
Sure, it’s possible BBRY could have a hit with one of its new keyboard smartphone designs over the next 18 months or so. It’s just unlikely. Heck, HTC boasts what is widely considered to be the best Android smartphone, but it can’t get any traction in a market flooded by Samsung. The BlackBerry 10 launched last year and it was a dud.
So what hope does BBRY have?
BlackBerry is wisely focusing on its services business, which makes mobile devices secure from hackers for governments and corporate clients. Security has been the closest thing to a moat for BBRY throughout its existence. Selling software and services (like BlackBerry Messenger) is a stretch to get BBRY back on its feet, but it has no other choice.
The latest quarterly results show BBRY to be in better financial shape than a it was a few months ago, but profitability and growth are still notional at best.
Yes, BlackBerry stock is up more than 30% for the year-to-date, but it has done so with tremendous volatility. That adds another layer of risk for anyone initiating a position in BBRY stock on the latest news.
I’ve said it before, and I’ll say it again: Most turnarounds don’t turn. If BlackBerry does return to growth and profitability, you can always start a position then. Yes, shares will be much more expensive at that point — but not when adjusted for risk.
For now, BBRY stock is best left to the fast money.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.