BlackBerry Ltd (NASDAQ:BBRY) used to be a household name. The company’s omnipresent phones once rivaled Apple Inc. (NASDAQ:AAPL) and observers widely viewed it as one of Canada’s most successful technology companies. But, times have changed and BBRY stock has performed terribly since its glory days.
Revenue has slumped a shocking 95% since 2011. The hardware business has all but disappeared. BlackBerry has lost money, on an earnings basis, for five years in a row. For most of that time, the company has worked at a turnaround. So far, though, it hasn’t provided many tangible results. BBRY stock perked up earlier this year, but it’s on the slide again.
Is there any reason to take another look at BlackBerry stock?
BBRY Stock Cons
Turnaround Is Taking Forever: Then-newly-hired BlackBerry CEO John Chen earned $89.7 million in 2014. That stunning pay package made him Canada’s highest-paid executive for the year. When he took over, Chen suggested the turnaround would take about a year and a half. Almost four years have passed since then. So far, BBRY shareholders haven’t gotten much to show for that huge outlay.
The hardware business wasn’t salvaged, as Chen had hoped to do. Overall corporate revenue continues to plummet every quarter. The latest report showed less than $250 million in revenue, taking the once-dominant tech company to a revenue run rate of less than $1 billion per year. BBRY stock price has been roughly flat since 2014, but the actual business continues to erode.
Giving Up On BB10: While it’s pretty clear that BlackBerry’s hardware ambitions are largely a lost cause at this point, investors had still hoped that something would come from its once-promising BB10 operating system.
However, management appears to have given up on it. A long-ago promised update has never been released. The app store is moribund, with virtually no publishers interested in making new games or apps for BB10. With no support for popular modern apps such as Snapchat Inc (NYSE:SNAP), BB10’s lifespan is greatly limited. Given the costs of keeping an operating system alive, BlackBerry might officially throw in the towel soon. In any case, BB10 was a part of the turnaround bull thesis that utterly failed to play out.
Unclear How Strong The Software Business Is: For now, the dying hardware business has distracted investors from the software business. But there may be less there than meets the eye even once the hardware distraction is gone. Year-over-year revenue is only growing at a 12% rate; hardly the stuff of a world-beating software play.
The company’s QNX platform for cars seems to hold great promise. However, it has gained only modest market share and faces strong competition from well-funded peers such as Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG). BlackBerry is also making numerous acquisitions in the security software space. BlackBerry earned a reputation for having the most secure devices. It’s unclear, however, if customers will remain loyal to the ecosystem without BlackBerry’s hardware.
BBRY Stock Pros
Hardware Business Almost Gone: As mentioned in the discussion above, investors have penalized BlackBerry for its many years of ugly results. This may finally end soon. Hardware revenues are down to less than one-fifth of the overall business. Off such a low base, there’s not much room left for further decline.
The company has suffered years of negative earnings and revenue comparisons. Once BlackBerry is a pure software company, it will finally show growth again. And, given its far smaller cost base, it may even generate positive ongoing EPS for the first time since 2012.
Strong Balance Sheet: BBRY stock isn’t cheap on a valuation basis. Less than $1 billion a year in revenues (and still falling) have to back up a $4.8 billion market cap. No one would suggest 5x sales for a slow-growing software business was cheap.
However, the company has a net cash position of $1.5 billion. Once you back that out, the company’s valuation looks significantly more palatable. According to Crunchbase, BlackBerry has made six acquisitions, largely in the security space, since Chen took over. And the company has plenty of funds to keep buying up firms. Chen’s turnaround is taking longer than he expected. However, the strong balance sheet gives him more time to try to find the right pieces to make the software angle come together.
Investors Have Low Expectations: After years of underperformance, BBRY stock has few strong proponents. Though it did rally earlier this year, investors have dumped BBRY stock again this summer. A poor earnings report didn’t help matters. But investors may have beaten up the stock enough already.
And professional investors are betting against BlackBerry. 39 million shares of BBRY stock are being sold short at the moment. That represents 8% of the float, and it’d take 11 days for those bears to cover their bets. While it’s not clear what the immediate catalyst would be to cause a reversal, this sort of elevated short interest can lead to sharp rallies. With expectations for BlackBerry low, shareholders would benefit from even a modest improvement in the company’s outlook.
To be frank, I think BBRY stock is still popular due to its legacy. A decade ago, this company did almost $20 billion a year in revenues and was a leading technology firm. Everyone likes a good comeback story, and BlackBerry returning to its past glory would be an amazing tale indeed.
Alas, for every tech turnaround that succeeds, far more fade quietly into history. CEO John Chen is certainly qualified to lead the turnaround, but so far, results have fallen far short of expectations. Perhaps the software pivot will work. But I wouldn’t bet my money on it. Turnaround plays often turn into value traps.
As of this writing, Ian Bezek did not hold a position in any of the aforementioned securities. You can reach him on Twitter at @irbezek.