3 Trends to Watch When BlackBerry Reports Earnings

BlackBerry (NYSE: BB) is slated to report its fourth-quarter results on Friday, March 29, before the market opens. After the company reported its Q3 results in December, BB stock fell sharply, reaching a 30-month low of $6.57.

Rumored Acquisition Would Give BlackBerry Stock a Huge Lift

Source: Shutterstock

Since then, BB stock has rebounded, along with the market, reaching nearly $9.50 before pulling back in recent days along with most other tech stocks.

BlackBerry stock has several positive catalysts which suggest that BB will react more positively after Friday’s results. Specifically, for the first time in many years, the company’s quarterly revenue is expected to rise year-over-year, and CEO John Chen recently revealed that the company’s annual top line should soon exceed $1 billion. Additionally, there are indications that the company’s government business is continuing to ramp up, and its revenue from its QNX operating system should continue to rise meaningfully.

On the negative side, however, BB ‘s costs from its acquisition of AI cybersecuity company Cylance will likely weigh on its profits and gross margins, while reducing its cash. Moreover, BlackBerry’s business with the government may have been hurt by last quarter’s long government shutdown.

BlackBerry stock bears could seize on and emphasize those negative metrics, causing BB stock price to drop in the near term. However, over the long term, BB stock remains well positioned to benefit from increased demand for cybersecurity and the proliferation of autonomous vehicles and connected devices.

Here are three important areas that the owners of BlackBerry stock should keep their eyes on when BB reports its results.

2020 Revenue Outlook and BB Stock Price

Earlier this month, Chen said that BlackBerry’s revenue from software will exceed $1 billion in 2020. The owners of BB stock should be interested to see if he reiterates that guidance on Friday.

Assuming that BB’s revenue from software comes in at $1.1 billion, and that its operating margin is the same 12% in fiscal 2020 that it reported last quarter, then BlackBerry’s operating profit from software would be $132 million. If we throw in another $18 million of operating profit from its non-software businesses with the same operating margin, BB’s earnings per share, excluding other items, would likely be at least 28 cents for the year. Applying a 25x multiple on that EPS would make BlackBerry stock worth $7 per share. Following the Cylance deal, the company still has $1.6 billion of net cash and short-term investments, or $3 per share, raising the value of BB stock to $10.00 per share, versus the current BB stock price of about $9 per share.

But of course, BlackBerry stock could be worth much more if investors become very excited about its growth and its future prospects. For example, Twilio (NYSE:TWLO) has a price-sales ratio of 25, while Splunk (NASDAQ: SPLK) has a price-sales ratio of 19. If BlackBerry stock traded at those valuations, based on 2020 revenue of $1.2 billion, it would be worth $55 per share or $22 per share, respectively.

Government Revenue Growth

There are multiple indications that BlackBerry’s business with governments is continuing to grow and may be accelerating. For example, the company recently announced that it had won two major contracts with NATO, although it did not disclose the amounts of those deals. If BB is winning new deals with NATO, there’s a good chance that it’s continuing to expand the revenue it receives from multiple Western European NATO members.

Moreover, earlier this month, the company announced that it had launched a new subsidiary, called BlackBerry Government Solutions, that will be focused on serving the federal government.

In the past, I’ve pointed out that the U.S. government has embraced the use of artificial intelligence in cybersecurity, and that the acquisition of Cylance consequently leaves BlackBerry well positioned to win additional, lucrative cybersecurity deals from the U.S. federal government. Such deals will be positive for BlackBerry stock.

Also positive for BlackBerry and BB stock is the fact that President Trump now looks poised to stay in office through at least January 2021. Not only has the Trump administration placed a heavy emphasis on cybersecurity, but a company owned by the president’s personal lawyer, Rudy Giuliani, has partnered with BB in the past.

QNX Revenue Growth

Chen has said that the acquisition of Cylance could help accelerate the QNX operating system’s top-line growth.

Meanwhile, revenue stemming from design wins for the operating system in 2016 and 2017 should have increased further over the last quarter. BlackBerry has also indicated that QNX has been incorporated into many other connected products. The company’s FY20 guidance will likely be boosted by the additional growth of QNX in autonomous vehicles and other connected devices.

The Bottom Line on BB Stock

BlackBerry’s results and guidance should be lifted by several items, including increased revenue from QNX and government deals. However, costs from the Cylance deal and delays in transactions with the U.S. government as a result of the federal shutdown may weigh on BlackBerry’s Q4 results. Over the longer term, however, BB and BlackBerry stock should be boosted by the proliferation of QNX, increased demand for its cybsersecurity offerings and the company’s overall top-line and bottom-line growth.

As of this writing, Larry Ramer owned shares of BB stock. 

Article printed from InvestorPlace Media, https://investorplace.com/2019/03/3-trends-to-watch-when-blackberry-reports-earnings/.

©2021 InvestorPlace Media, LLC