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A Turnaround Is Unlikely For BlackBerry As Internals Weaken Further

BlackBerry’s (NYSE:BB) woes just won’t seem to ease. Its recent earnings results show a steep decline in sales on a year-over-year basis and negative cash flow growth for BB stock in the past six months.

A BlackBerry (BB) sign out front of a corporate office in Silicon Valley, California.
Source: Shutterstock

Moreover, the meme buzz surrounding BlackBerry seems to be fading as investors focus on the brass tacks. Hence, expect an even torrid time ahead for BB stock.

BlackBerry attracted much attention from meme stock traders due to its ongoing business challenges and high short interest ratio. Its shares spiked twice this year, but the stock quickly faded from its highs.

Since June, the stock has lost over 35% of its value. Despite the massive drop in its price, it still trades at over 7x forward sales boasting a market capitalization of over $5.5 billion.

Based on its operating performance and outlook, BB stock is immensely overvalued.

Lackluster Second Quarter

BlackBerry recently posted its second-quarter results where its top line declined by more than 30% from a year ago to $175 million. Its cybersecurity segment saw a $1 million increment in revenues on a sequential basis, adding $13 million in sales during the second quarter.

Furthermore, the company’s Internet of Things segment saw a $3 million drop in revenues sequentially to $40 million in the quarter. The IoT business is arguably BlackBerry’s most promising segment, includes revenues it generates from its QNX operating system.

The operating system is embedded in more than 150 million vehicles. Revenues from the segment mainly relate to production-based royalties. Its prospects are closely linked to the automotive industry.

Moreover, gross margins fell from 76.8% in the prior-year quarter to 64% in the second quarter this year. Total dollar loss for the quarter came in at a whopping $144 million.

Based on its top-line results, it is clear that its efforts to grow its revenue base are failing miserably. It couldn’t turn a corner during the second quarter, which means that there are tougher times ahead. On a more positive note, it did generate $12 million in positive cash flows from operating activities during the quarter. However, due to negative cash flows in the first quarter, its free cash flows for the first six months of the year were at a negative $25 million.

Bleak Outlook

BlackBerry’s stunted revenue growth is a major problem, and so far, it has exhibited nothing to suggest that sales could increase in the future. It is trying its best to explore new business avenues with IoT and cyber security, but there are several issues that it needs to overcome.

Its free cash flow numbers are deplorable, and its declining gross margins will continue impacting its bottom-line performance. During the second quarter, one of the company’s top executives, Tom Eacobacci, announced his departure just one year since his appointment. It appears that the company’s top-level hierarchy is also dissatisfied with its sales team’s direction.

Full-year sales will probably be lower than $800 million. At this level, it should expect to make profits or grow its business. All hopes are on the successful sale of its patents, which could help BlackBerry generate a healthy cash flow.

Apart from that, there aren’t many catalysts that could turn things around for the company.

Final Word On BB Stock

BlackBerry is not making much progress in growing its business, and its recent earnings performance is a testament to that. It needs a massive rebound in revenues in cash flows for it to justify its lofty valuation.

The meme stock buzz has faded away, and based on its current performance, BB stock is one you should avoid.

On the date of publicationMuslim Farooque 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

Article printed from InvestorPlace Media, https://investorplace.com/2021/10/a-turnaround-is-unlikely-for-bb-stock-as-internals-weaken-further/.

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