Can once-dominant tech company Blackberry (NYSE:BB) regain its past glory? Is BB stock a buy?
These are the fundamental questions confronting investors as the former smartphone maker turned cybersecurity firm struggles to reinvent itself. That reinvention has also been complicated this year by the fact that Blackberry has become a “meme stock.”
Targeted by retail investors like those that congregate on the r/WallStreetBets Reddit forum, BB stock has been pushed up as much as 330% before crashing back down. Today, the shares currently trade at about $10 and, while they are up 57% on the year, BB stock is still a long way from the $140 peak it changed hands at in the mid-2000s.
BB Stock and Its Meme-Stock Status
Blackberry has tried to shake off its status as a meme stock. But it hasn’t been easy. Unfortunately, the company has many of the traits that the Reddit crowd looks for in a stock.
Like Gamestop (NYSE:GME), AMC (NYSE:AMC) and others, Blackberry is a once-successful company that has been surpassed by newer technology. Just as online gaming has hurt brick-and-mortar retailer Gamestop and streaming has harmed movie-theater chain AMC, Apple’s (NASDAQ:AAPL) iPhone effectively killed Blackberry’s once dominant smartphone, replacing the mobile-phone keyboard with touchscreen technology.
BB stock also continues to be a heavily shorted stock on Wall Street, with professional investors betting that its share price will continue to sink. This is despite the company’s effort to carve out a role for itself and gain market share in the increasingly crowded cybersecurity space (specifically the market for software security).
This combination of downtrodden company and heavily shorted stock makes Blackberry the type of lost cause that Reddit traders champion. It’s the kind of name they take pride in pumping up to illogical levels.
Blackberry’s Poor Financials
If BB stock is to be taken seriously again, the company will need to get its finances in order and demonstrate consistent earnings growth. And at this point, that’s not happening.
Back in June, Blackberry announced its earnings for its fiscal 2022 first quarter. The results were not great. For example, the company reported that it lost $62 million, or 11 cents per share, in Q1. This is compared to a loss of $636 million, or $1.14 per share, in the year-earlier period. Revenue in the quarter also fell to $174 million, down from $206 million a year ago. Analysts had expected a loss of 6 cents a share on $172 million in revenue.
More concerning than the headline numbers, though, was the weakness in Blackberry’s cybersecurity unit, which is where the company is putting its focus. Cybersecurity revenue for Q1 came in at $107 million, down 10% from $119 million in the same period of 2020. The company’s software and services business was also weak, which wasn’t encouraging. And while Blackberry’s Internet of Things (loT) segment grew at an annual rate of 48% in the quarter, it was not enough to offset a broader decline in the company’s overall business.
Bottom line? Blackberry continues to struggle financially.
Results aside, however, there is more you should know about BB stock and it’s business.
Specifically, Blackberry touts it partnerships with governments and healthcare agencies around the world, citing these relationships as growth opportunities. Basically, the company has contracts to provide cybersecurity software and services to the Canadian government, as well as the U.S. Department of Commerce and U.S. Department of Energy. BB also works with the U.K.’s National Health Service (NHS) and other organizations in Europe and Australia.
Blackberry said it expects continued growth in these kinds of government partnerships as it increases its number of sales representatives by 23% this year. But while this sounds good, these partnerships will have to contribute much more to Blackberry’s bottom line in order to have a meaningful impact and help the company financially. To date, the government arrangements haven’t given BB’s finances a substantial boost.
Stay Away From BB Stock
All in all — short of Blackberry being acquired by a larger technology firm — there’s not much reason to buy BB stock.
Currently, the shares trade at about four times book value and seven times sales. While that’s comparatively cheap for a software company, there’s a reason why the stock is discounted. Blackberry’s transformation into a software-security firm continues to be difficult, the company has an ugly balance sheet and its stock is languishing.
There’s very little to get excited about with this former darling of the tech world. Like the flip phone, Blackberry’s time has passed. Don’t buy BB stock.
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On the date of publication, Joel Baglole held a long position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.