Is There Any Upside Left in the BlackBerry Ltd Turnaround?

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BB stock - Is There Any Upside Left in the BlackBerry Ltd Turnaround?

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I almost long for the days when the only people who owned a BlackBerry from BlackBerry Ltd (NYSE:BB) were the talent agents, studio executives and selected production personnel out here in Hollywood. I used to shake my head as they furiously typed on their little keyboards and thought, in smug satisfaction, “That will never be me.”

Well, it is me. Except I happen to use an Apple Inc. (NASDAQ:AAPL) iPhone. It’s also tens of millions of other people. Blackberry itself is probably longing for those early days as well, as the iPhone and other competition have virtually destroyed its hardware model.

But fortunately for BB stock, the company has managed to slog through the years and morph into a software company.

BlackBerry has been growing its enterprise software and services, but growth has not been terribly impressive. In fiscal year 2016, it generated $211 million in revenue. That did jump 65% to $344 million in fiscal year 2017. However, there is only a modest increase in fiscal year 2018, up $44 million or about 14%, to $388 million.

Technology solutions has seen even slower growth, from $135 million in 2016, to $151 million in 2017, and then up only 8% to $163 million in fiscal year 2018. The company did have a boost in licensing and IP revenues from $127 million to $196 million this past year.

Overall software and services for BB rose from $622 million to $747 million, up about 20% year-over-year. Not bad, but not blockbuster numbers. And of course during this period, handheld device sales have virtually disappeared, dropping from $374 million to $64 million. Hard to believe it was at $884 million in fiscal year 2016.

And it was that substantial decline in handheld devices which resulted in overall BlackBerry revenue decreasing from $1.31 billion to $932 million. However, transitioning from hardware to software means substantially reduced cost of sales, and higher margins. Cost of sales fell for BB from $542 million to $262 million.

Gross profit for BB, after adjusting for a whole lot of changes in this transition, came in at $721 million, down from $849 million. Operating income rose from $55 million to $78 million, and net income came in at $78 million.

However, like all good companies, BlackBerry is focusing on North America first. The EMEA region accounts for 30% of sales at this point. However, Asia to Pacific is only 11%, and Latin America is only 2%. So while there is plenty of competition in this space, there is also plenty of market share for BlackBerry to attempt to grab over time.

BB also has another thing going for it, which is that it has $2.4 billion in cash that is offset by only $600 million in debt. So there is plenty of cash for the company to access in terms of expansion.

Bottom Line for BB Stock

Personally, I don’t see the opportunity for massive returns in BB stock. I think you’re looking at short-to-medium-term trades. Right now, BlackBerry stock trades at just under $12 per share. We’re in the midst of a tech selloff, and if the stock falls much further, I think you have an opportunity to jump in for maybe a 20-30% gain.

But for the long term, I think there are more attractive stocks than BB stock.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance, and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/is-there-any-upside-left-in-the-blackberry-turnaround/.

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