BlackBerry (NYSE:BB) is due to release its fiscal third-quarter earnings report on Dec. 21. Like most names, BB stock has suffered immensely due to the coronavirus and its new variants. However, investors will be looking for a solid performance with the worst of the pandemic apparently in the rearview mirror. However, it appears unlikely for the company to usher in the next chapter of growth.
The company’s results should have shown improvements, but the management’s indecisiveness on its patent portfolio sale significantly affected its top-line. With an 86% year-over-year drop in licensing and IP revenues for the fiscal second quarter, sales couldn’t gain much traction. Consequently, the $175 million it made during the quarter was up a meager $1 million on a sequential basis from a lackluster first quarter.
So, it appears it would be tough for the company to create additional shareholder value, at least in the near term. Moreover, BB stock trades at close to seven times forward sales, further limiting its attractiveness.
Recent Results
The past couple of quarters for BlackBerry turned out to be the worst periods under the company’s current CEO John Chen. The company’s transition to a software services business has taken significantly longer than expected, and recent acquisitions haven’t been able to offset losses. On top of that, you have the pandemic’s crippling effect on the auto industry and licensing troubles. Consequently, the company is only projected to make $726 million in revenues during this year.
The latest earnings report for the second quarter showed that the company revenues were down 32.4% from the prior-year period. However, there is a silver lining here, as things will get better.
The auto industry is likely to make a comeback which is great news for BlackBerry’s QNX business. QNX has been quite a disappointment for the company; even though multiple vehicles and EV automakers have BlackBerry’s solutions installed in their EVs, it hasn’t translated into growth.
On the flipside, EV sales continue to soar at an incredible pace each year. As we get closer to fiscal 2023, the comps will likely ease-out, and the company may get closer to pre-pandemic sales figures.
Under-Performance Against Its Peers
Apart from sales, investors will also want certain key metrics to improve. Perhaps a key metric for BlackBerry and its peers is annual recurring revenues. The company’s ARR was down on a year-over-year basis for the second quarter, while its competitor in CrowdStrike (NASDAQ:CRWD) added $170 million in new ARR in the same quarter. On top of that, CrowdStrike has also raised its sales forecasts for its fiscal year, and it might be able to generate two times as many sales as BlackBerry in the same period.
The company’s other aspect that needs to work on is its financial flexibility. It has close to $800 million in cash, but a major portion of it is tied up in its intangibles. Hence, it would be a great option for the company to monetize its patent portfolio to improve its financial positioning. This would also attract more investments in the company’s core growth segments.
Final Word On BB Stock
BlackBerry is still finding its footing as a software services business as it looks to replicate the success of its smartphone business. Unfortunately, it hasn’t found much success as it continues to underperform across all its key segments. Moreover, its financial positioning is also questionable as the bulk of its cash is tied up in its intangible assets. Hence, BB stock is one to avoid at this point.
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.
