BlackBerry (NYSE:BB) has been one of the year’s more surprising meme stocks. Shares shot up from $7 to $30 at one point on Reddit enthusiasm and a gigantic short squeeze. BB stock quickly retreated back to $9. However, it popped once again in June, spiking to $15. Now, though, the stock has slumped once again and appears set to lose the $10 technical support level.
While it’d be hard to criticize the enthusiasm of BlackBerry’s shareholder base, there’s a major flaw in the bull thesis. Simply put, BlackBerry’s business is doing terribly. This isn’t a new development, either. The company has been shrinking for years, and any hope of a turnaround in 2021 is looking increasingly unlikely.
Earnings Fail to Excite
BlackBerry hasn’t reported Q2 results yet; they will be out later this month. So the company’s Q1 results are all we have to work with for now. It’s not hard to see why the stock’s momentum fizzled once that Q1 report came out in June, however.
It started with the top-line, where revenues slumped more than 15% year-over-year to $174 million. This was slightly ahead of analyst expectations of $171 million for the quarter. However, needless to say, it’s hard to get too excited about a 15% drop in revenues, even if people had expected even worse. BlackBerry also remained unprofitable on the quarter.
Zooming way out, BlackBerry’s underwhelming 2021 is hardly an aberration. The company has seen revenues shrink nine out of the past ten years. Additionally, it generated positive earnings per share for the full-year of 2018. That was its only time to do so since 2012.
BB Stock – Strategic Direction
While you may still see BlackBerry phones in memes on Reddit, that line of business dried up years ago. Management realized that it had simply failed to adapt to changing consumer preferences in hardware and moved on to a different focus.
Unfortunately, the company’s new focal point, security software, has failed to catch on either. BlackBerry hoped that its QNX operating system would find a wide market for applications that need top-tier security.
To date, the automobile market has been by far the most successful for BlackBerry and QNX. However, that has hit a slowdown in 2021 given the semiconductor shortage which has hit new car production. That said, it’s hardly like the QNX automobile business had that much momentum even before this year. Don’t expect any miracles from it once the auto industry is back to full speed.
Internet of Things
The one bright spot for BlackBerry has been in the Internet of Things area. In Q1, it generated $43 million of Internet of Things revenue. That isn’t a lot, admittedly, but it was an impressive 48% surge from the same period last year.
BlackBerry has developed applications for a variety of areas such as fridges and TVs. However, potentially the most promising is in the healthcare arena, where BlackBerry could carve out a decent niche. Healthcare, after all, truly does need high-end digital security, particularly as fields such as telemedicine look to gain mainstream adoption.
Still, 48% revenue growth on a tiny division hardly offsets continuing double-digit declines in the main business and in the licensing operation. BlackBerry has a market capitalization of more than $6 billion for a company that generates just $800 million in annual revenues and continues to shrink.
Perhaps the company can finally get a turnaround rolling led by the Internet of Things applications. It’s at least a positive sign and something that gives the company some life. But it’s way too little to matter at this point for a company trying to support such a huge market valuation.
BB Stock Verdict
With a meme stock, you can never say never. GameStop (NYSE:GME), for example, remains a huge winner year-to-date despite its earnings reports continuing to be uniformly terrible. In a few cases, the pure force of social media buzz has been enough to overcome a lack of positive fundamentals.
In most situations, however, a business needs to improve to justify a higher share price. And, unfortunately, BlackBerry just isn’t getting it done. The security business was supposed to stabilize and even return to growth at some point, but it hasn’t. While the Internet of Things division is nice, it simply isn’t big enough to move the needle. As such, traders should still sell BB stock on any rallies.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.