BlackBerry’s (NYSE:BB) lackluster operating performance indicates that it is unlikely to create long-term value. Though one of its core products, QNX, continues to gain traction, it’s hardly enough to generate meaningful returns for the company. Moreover, with its management’s spotty track record, it seems improbable that they would wisely allocate the proceeds from the sale of BlackBerry’s patents.
Therefore, BB stock will be essentially relying on retail traders to help bump up its price.
BlackBerry was a major player in the smartphone business but was forced to transition its business model when the iPhone and Android devices disrupted the market. It is now a software security provider for internet-connected devices. Since its transition, though, its fundamentals have continued to weaken with every passing quarter.
Earlier this year, it became a meme stock which is why its one-year return is over 115%. Consequently, the stock is now trading over 8.5 times forward sales.
Thus, with its weak internals, a worrying outlook and an overblown valuation, it’s tough to invest in BB stock at this time.
Dismal Financial Performance
BlackBerry’s sales increased 15% in fiscal 2020. Yet, this growth was mainly attributable to the synergistic gains from the acquisition of cybersecurity firm Cylance. It also generated strong licensing revenues from its smartphone licensing agreements and sales of its patents.
However, its revenues dipped 14% in fiscal 2021, as automakers shipped fewer cars due to pandemic-induced shortages. QNX is a major growth engine for the company, but its sales nosedived during the pandemic with fewer automobile shipments. QNX is currently the top embedded operating software for connected vehicles.
Moreover, the dismal performance has carried on to the first six months of fiscal 2022. Its revenue has plunged 25% from the prior-year period, with the global chip shortage. BlackBerry’s management states these challenges will continue to play a factor in the next few quarters. Consequently, analysts believe that its revenues will decline 21% this year.
The company had generated a minuscule GAAP profit in fiscal 2019 but is now quite unprofitable. Its net loss had grown by a significant margin in fiscal 2021 but narrowed down in the first half of this year.
Nevertheless, analysts believe that BlackBerry will continue to be unprofitable this year.
The Challenges Ahead
BlackBerry has had a dreadful time improving its top and bottom lines over the past several years, and the situation is unlikely to change anytime soon. Its core products have underperformed and haven’t generated meaningful revenues for the company.
At the same time, licensing revenues will drop significantly as the company plans to sell a major portion of its patents to third parties. Though it expects to generate a sizeable amount of proceeds from the sale of its patents, there is no assurance that it’ll create additional shareholder value.
We have BlackBerry’s acquisition of Cylance of $1.4 billion, its biggest purchase to date. Unfortunately, Cylance performed miserably after its acquisition, and consequently, BlackBerry stopped reporting its metrics.
Looking ahead, it’s hard to see how the company can improve its fundamentals in the long term. On top of that, it just has $707 million in liquidity and close to $900 million in debt.
Final Word on BB Stock
BlackBerry has enjoyed a healthy run-up in value due to the meme stock mania.
However, like with other meme stocks, BlackBerry offers little value for the long-term investor. Its products have failed to generate substantial sales for the company and limit its cash burn.
Hence, with minimal growth drivers, it’s tough to get excited about BB stock at this time.
On the date of publication, Muslim 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.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.