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Why Is BlackBerry (BB) Down 9.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for BlackBerry (BB - Free Report) . Shares have lost about 9.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is BlackBerry due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

BlackBerry Swings to Loss in Q2, Revenues Fall Y/Y

BlackBerry reported tepid second-quarter fiscal 2023 (ended August 31, 2022) results, with the top line contracting year over year. Nonetheless, accretive design wins and partnerships with major players bode well for the Canada-based company. The sustained demand for IoT products is a significant tailwind.

The company reported an adjusted loss per share of 5 cents compared with the prior-year quarter’s loss of 6 cents per share. The Zacks Consensus Estimate is pegged at a loss of 7 cents per share. Quarterly total revenues declined 4% year over year to $168 million.

Quarter in Details

Revenues from Cyber Security totaled $111 million, down 7.5% year over year. Revenues from IoT totaled $51 million, up 28% year over year. Licensing and Other contributed $6 million, down from $11 million a year ago.

Software and Services revenue rose 1.3% year over year to $162 million.

In the IoT business unit, the company’s QNX platform secured nine new design wins in Auto and 10 in the General Embedded Market.

In the second quarter, the company announced that its QNX technology and QNX OS for Safety 2.2 will be used by Volkswagen Group's software company CARIAD. Blackberry QNX and OS for Safety 2.2 will be integrated into VW.OS to serve as an efficient source for the development of advanced driver assistance systems and automated driving functions.

Within the auto sector, increasing consolidation of digital cockpits augurs well for BlackBerry. In the reported quarter, the company announced that Hozon’s new energy automobile had selected BlackBerry QNX technology to power its future sedan, the NETA S. The company will leverage BlackBerry QNX Neutrino RTOS and QNX Hypervisor for the vehicle's intelligent technology cockpit.

In the fiscal second quarter, Blackberry partnered with LeapXpert to enable the use of the BlackBerry Dynamics platform on popular messaging applications like WhatsApp, iMessage, WeChat, SMS, Telegram, Signal etc. The collaboration will provide customers with secure storage for important information and data leakage protection. It will also ensure that employee-customer interactions are end-to-end encrypted and captured.

In Cyber Security, the company witnessed solid traction within government and financial services verticals. The continued momentum in BlackBerry’s Cylance product portfolio bodes well for the segment. The segment also delivered double-digit sequential billings growth.

Other Details

Gross profit decreased 5.4% from the year-ago quarter to $106 million. The gross margin contracted 90 basis points (bps) to 63.1%. Non-GAAP gross margin contracted 100 bps to 64%.

Total non-GAAP operating expenses were $129 million. The adjusted operating loss was $22 million compared with an adjusted operating loss of 30 million a year ago. Adjusted EBITDA loss came in at $16 million compared with an adjusted EBITDA loss of $14 reported in the year-ago quarter.

Cash Flow & Liquidity

For the first six months of fiscal 2023, BlackBerry utilized $66 million of net cash in operating activities. As of Aug 31, 2022, BB had $431 million in cash and cash equivalents with $449 million of long-term debentures.

Outlook

For fiscal 2023, BlackBerry expects IoT revenues in the range of $200-$210 million, indicating 12-18% growth year over year. Cyber business billings growth is expected within 8-12% due to increased uptake of security products. For the IoT business, BlackBerry expects strong growth despite the auto industry headwinds.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

Currently, BlackBerry has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

BlackBerry has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

BlackBerry is part of the Zacks Computer - Software industry. Over the past month, Adobe Systems (ADBE - Free Report) , a stock from the same industry, has gained 13.9%. The company reported its results for the quarter ended August 2022 more than a month ago.

Adobe reported revenues of $4.43 billion in the last reported quarter, representing a year-over-year change of +12.7%. EPS of $3.40 for the same period compares with $3.11 a year ago.

For the current quarter, Adobe is expected to post earnings of $3.49 per share, indicating a change of +9.1% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.1% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Adobe. Also, the stock has a VGM Score of B.


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