Canada-based mobile phone company BlackBerry Ltd (NASDAQ:BBRY) used to be an undisputed giant in the cell phone market. Back in 2009, its namesake phones, which were considered indispensable to its customers, boasted an estimated 20% market share.
That market share, when rounded, is now 0%. BlackBerry sold only a couple hundred thousand phones last quarter.
This pales in comparison to the millions of phones sold by Apple Inc. (NASDAQ:AAPL) and those running Alphabet Inc’s (NASDAQ:GOOG,NASDAQ:GOOGL) Android software. The BlackBerry stock price tells the tale — down 50% over the past five years.
Can BlackBerry Stock Save Itself?
BlackBerry has been trying to shift gears and now considers itself a mobile software firm. It is also targeting mobile security. It has officially given up on hardware and no longer makes its own phones. The firm has fallen from an industry leader to more or less fighting for survival. BlackBerry stock remains beaten down, but has potential with any operational recovery.
BlackBerry released its fiscal third-quarter earnings back in December. The results weren’t pretty. Sales fell 47% to $289 million and the net loss was $117 million, or 22 cents per share. Operating cash flow for the nine months of its fiscal year was a negative $242 million. Quarterly hardware sales fell by two-thirds to $70 million.
Positively, the company still had nearly $1.3 billion in cash in the bank, or a couple of dollars per share. But netted against $607 million in debt and burning through cash as it repositions its business, it could fall to negligible levels if things don’t turn around within the next several quarters.
Management put as positive a spin as it could on the most recent quarter: 80% of software sales are recurring and the firm boasted more than 3,000 enterprise customer orders during the quarter. Business customers had been extremely loyal to Blackberry as many individual consumers had used their “Crackberry” devices for both business and pleasure.
Its press release touted its highest quarterly gross margins (67%) in the firm’s history, operating profitability, and “overall positive non-GAAP EPS.” Back out enough losses, and most firms can achieve adjusted profitability. But the negative cash flow cannot be undone by accounting maneuvers.
BlackBerry did say it expects to break even on a cash flow basis during the fourth quarter. It expects to report its latest results on March 31. It plans to update investors on a business venture with car giant Ford Motor Company (NYSE:F) where it provides connected car and software licensing in certain Ford vehicles.
Despite the few positive developments, BlackBerry’s full year results are likely to be grim. Analysts expect sales to fall 37% to $1.4 billion and adjusted earnings of only a couple of pennies. Next year isn’t projected to be any easier — analysts are calling for a sales decline of 28% to under a billion, and another couple of pennies of profits.
During its earnings call, BlackBerry talked of enterprise software products where security is a key feature. Software that helps companies run mobile platforms and apps is clearly a growth industry, as is embedded mobile software for automobiles, such as those made by Ford.
Management also talked about huge opportunities in the Internet of Things, or IoT. It also licenses its software, such as with a partner in Indonesia. As it turns out, BlackBerry’s messaging service remains hugely popular in Indonesia. It boasts 55 million active users, demonstrating the network effect that can help support a platform.
Bottom Line on BlackBerry Stock
BlackBerry’s service revenue growth is noteworthy, but doesn’t appear to be accelerating rapidly. Its software seems to work well in automobiles, but anything to support self-driving cars appears to only be in prototype mode. Indonesia is a bright spot, but not enough to drive the overall company forward.
BlackBerry operates in many appealing and growing industries, but seems to be at too much of a disadvantage compared to the competition. Apple’s iOS and Google’s Android software dominate the mobile phone space right now. Without the related hardware sales, it seems extremely difficult to see BlackBerry breaking back into a leadership position in the mobile market in a big way.
Investors would probably be best served by waiting to see how BlackBerry’s fourth-quarter results turn out. The earnings release is just a couple of weeks away. If software sales come in ahead of expectations and cash flow trends perk up, shareholders might gain some confidence that the company can start returning to growth, or at least some level of consistent profitability.
As of this writing, Ryan Fuhrmann is long shares of Alphabet, but did not hold a position in any of the other aforementioned securities.
