Mention Blackberry (NYSE:BB) stock and most investors will likely imagine financial statements propped up by smartphone sales.
But mobile phones are no longer the primary business line for the Ontario company. Instead, it now primarily operates in the cyber security sector, where it recorded $120 million of its $175 million in Q2 earnings.
The good news is that Blackberry is in the right sector. Market research indicates that the cyber security sector is slated for 10.9% compound annual growth through 2028.
The bad news though is that Blackberry is the wrong company through which to chase that growth.
Blackberry is simply performing poorly. If it is to make a comeback then it will have to prove to investors that it can increase its revenues. However, that is not what its most recent earnings report shows.
Blackberry hardly grew on a sequential basis as Aug. 31 revenues hit $175 million, up from $174 million a quarter prior.
That isn’t what is worrisome, though. The real obvious top-line issue is that its $175 million in Q2 revenues was 32.4% lower than the $259 million a year earlier.
The company recorded $349 million in revenue through the six months leading up to Aug. 31 of this year. In the same period a year earlier that figure was $465 million. Again, those are troubling figures and should do little to drive capital through its doors in the form of stocks purchases.
in other words, none of those numbers are going to be compelling to investors. The ironic truth is that BB stock actually moved upward on Sept. 22 when those figures were released. Shares trended up from approximately $9.50 to $10.50 on the news. BB trades at a little more than $11.30 today.
That might leave fundamental investors scratching their heads, but my guess is that investors were impressed with the fact that Blackberry has slashed its net losses through the first half of 2021. However, that decrease was more than a little troubling when viewed through multiple lenses.
Net Losses Slashed?
I would be very careful betting on the idea that Blackberry has righted its ship.
Yes, it did record a $206 million loss through the first half of 2021. That was a vast improvement on the $659 million loss the company suffered through the same period in 2020.
But I have trouble understanding why investors should reward BB stock with a purchase after the firm’s Q2 ‘21 performance because net losses were significantly worse than those a year earlier.
In fact, those losses ballooned to $141 million in Q2 ‘21. That’s 6.4X times more than the $22 million net loss in Q2 ‘20.
That massive increase in net loss makes it really hard to understand why investors have pushed Blackberry since earnings were released.
Frankly, it doesn’t make sense. You can continue on and find other reasons that should lead to the same conclusion: BB shares aren’t worth your money.
The reason it remains high likely relates to its meme stock status. Yet, short interest is well below 10% at present.
What to Do
In short, avoid any headlines you read that hype Blackberry up. Most of those are likely to contain a narrative that relates to either cyber security growth, IoT, or EVs.
Blackberry touches on all of those sectors, true. It generated the vast majority ($160 million) of its $175 in revenues from cybersecurity and IoT, but that doesn’t make it worthwhile. Again, the firm exhibited a significant slowdown in Q2 of this year.
Likewise, avoid other narratives which indicate that Blackberry will rebound in line with a normalization of the semiconductor supply chain.
That’s simply a vague notion that attempts to explain away greater issues. Stick to what the numbers indicate and don’t waste your money on BB stock.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.”