BlackBerry Is a Low-Risk Opportunity Investors Can Play With Their Lunch Money
The Canadian company is selling off. And I'm buying.
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An old "Stocks Under $10" Portfolio and Bullpen name reported fiscal fourth-quarter financial results on Wednesday morning.
For the period ended February 28, BlackBerry BB, which once upon a time started the smartphone craze, posted adjusted EPS of $0.03 (GAAP EPS: -$0.01) on revenue of $141.7 million. These top and adjusted bottom lines both beat Wall Street's expectations, despite the fact that the revenues reflected an 18.1% year-over-year contraction.
It needs to be said that all three of BlackBerry's divisions beat Wall Street expectations as well as the firm's guidance for the quarter and the year.
Operations
As revenue contracted 18.1% to $141.7 million, the cost of that revenue printed at $37.6 million (+19.7%) as gross margin narrowed from 79.9% for the year-ago comparison to 73.5%. GAAP operating expenses contracted 16.7% to $112.1 million. This left a GAAP operating loss of $8 million, which narrowed from a loss of $12.5 million for the year-ago period.
After accounting for interest, other income & expenses, gains & losses from discontinued operations as well as taxes, the GAAP net loss landed at $7.4 million, up sharply better than the year-ago comp loss of $56.2 million. That took the GAAP loss per share to $0.01 from a loss of $0.02. Once adjusted for $11.4 million in restructuring charges and $6.3 million in other assorted items, GAAP EPS printed at $0.03, three cents per share above expectations.
Segment Performance
- Secure Communications (formerly Cyber Security) drove revenue of $67.3 million (-6%) as the cost of sales increased 29.6%, leaving a gross margin of 42.8%, down from 52.7%.
- QNX (formerly IoT) generated revenue of $65.8 million (+4.4%) as the cost of sales increased 14.4%, leaving a gross margin of 54.7%, down from 56.2%.
- Licensing generated revenue of $8.6 million down from $15.4 million, as the cost of sales increased from $1.4 million to $1.6 million. This left a gross margin of 7%, down from 14%.
Fundamentals
For the period reported, BlackBerry generated operating cash flow of $42 million (up from -$14.7 million). Out of this came $500,000 in capex spending (down from $1.6 million), leaving free cash flow of $41.5 million, which was up from -$16.3 million for the year-ago comparison. The company does not return capital to shareholders.
Glancing at the balance sheet, current assets ran at $591.5 million, including a cash position of $337.8 million. Current liabilities ended the period at $344.3 million, including deferred revenue (not a true financial obligation) of $161.5 million. That leaves a headline current ratio of 1.72, which rises to 3.24 once adjusted for those deferred revenues. That's probably a lot stronger than many readers expected.
Total assets amount to $1.296 billion, including $524.7 million in goodwill and other intangibles. At 40.5% of total assets, that's more than I like, but not off of the charts and not unheard of. Total liabilities less equity comes to $575.7 million. This includes long-term debt of $195.3 million, which is something that the company could pay off out of pocket almost twice over. BlackBerry has no short-term debt on the books.
Guidance
For the current quarter, BlackBerry is guiding revenue towards $107 million to $115 million, which is below the consensus view for a rough $128 million. The company sees adjusted EBITDA at break-even to $7 million, which is also below expectations for about $14.1 million. Adjusted EPS is now seen at -$0.01 to break-even. Wall Street had been looking for about $0.02.
For the full year, BlackBerry is projecting revenue of $504 million to $534 million, below the consensus view for about $548.3 million. Adjusted EBITDA is projected at $69 million to $84 million. That puts the midpoint below the $78 million that Wall Street had in mind. Adjusted EPS is seen at $0.08 to $0.10, which is in line with the $0.09 that Wall Street was expecting.
CFO Tim Foote commented on the light guidance during the call. Remembering that BlackBerry is headquartered in Waterloo, Ontario, Foote said... "Given the recent tariff changes, and particularly automotive tariffs, like others in the industry, we're currently uncertain of the impact this could have on our business. While we currently don't see that tariffs will directly impact our products and service, we do expect some indirect effects on BlackBerry due to impacts to our customers, including supply chains and macroeconomic demand, although these effects are currently difficult to model."
Foote then added... "Due to this uncertainty, we are reiterating the top-end of our guidance range provided at our Investor Day in October."
My Thoughts
Performance is not great. Sales continue to fall. That said, cash flows have greatly improved, and the balance sheet is much stronger than I expected, having not taken a real look at this name in a few years.
The stock is down on the weak guidance, which is cautionary, as it should be. That said, this could be a low-risk opportunity to buy a Canadian name at a discount. I mean the stock cannot lose much more than $3 per share and if it appreciates a dollar per share from here, that's 30%. One could play this game with their lunch money.
Readers will see that from late 2024 through to the present, BlackBerry built a head-and-shoulders pattern with a neckline at about $4.10. That means that the selloff might be close to done in his name, for now. If one was short, the target likely would have been reached this morning. Additionally, the 200-day simple moving average (SMA), which is where the pattern began in early December, showed up as support.
Yes, the daily Moving Average Convergence Divergence (MACD) and Relative Strength are both set up bearishly. That said, I came away from this research encouraged by what I see. I want to buy a few of these shares as a spec position. I will wait for this piece to hit publication, so readership will get first crack, but once this piece is public... I will initiate this name.
PS... I've been adding to Peloton Interactive PTON on this wobble.
At the time of publication, Guilfoyle was long PTON equity.
