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Why Is BlackBerry (BB) Down 6.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for BlackBerry (BB - Free Report) . Shares have lost about 6.5% 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 Q2 Loss Wider Than Expected, Revenue View Cut

BlackBerry reported lackluster second-quarter fiscal 2020 (ended Aug 31, 2019) financial results.

Net Loss

On GAAP basis, net loss for the quarter was $44 million or loss of 10 cents per share against net income of $43 million in the year-ago quarter. The year-over-year decline was primarily due to higher operating expenses.

The company achieved break-even non-GAAP earnings per share. Adjusted loss per share was 2 cents, which was wider than the Zacks Consensus Estimate of loss of 1 cent.

Revenues

Quarterly GAAP revenues increased 16.2% year over year to $244 million. Software and services revenues were $239 million, up 24%. Geographically, North America generated revenues of $179 million compared with $133 million in the year-ago quarter. Revenues from Europe, Middle East and Africa were $47 million, down 11.3% year over year, while revenues from other regions totaled $18 million, down 25%. Non-GAAP revenues were $261 million compared with $214 million in the year-earlier quarter.

By product and service type, non-GAAP revenues from IoT decreased 5% year over year to $134 million. BlackBerry Cylance non-GAAP revenues came in at $51 million, benefiting from its acquisition of cybersecurity firm, Cylance. This boosted the company’s software and services business as it has provided additional cyber security capabilities with advanced artificial intelligence and machine learning technology. Non-GAAP revenues from Licensing were $71 million, up 26.8% year over year, while Other non-GAAP revenues decreased to $5 million from $17 million in the year-earlier quarter.

Other Details

Gross profit was $176 million or 72.1% of revenues compared with $161 million or 76.7% of revenues in the year-ago quarter. Total operating expenses increased to $219 million from $122 million. This was due to higher selling, marketing and administration expenses, and lower favorable adjustment of debentures fair value. Operating loss was $43 million against operating income of $39 million in the prior-year quarter, while non-GAAP operating income was $2 million.

Cash Flow

During the first six months of fiscal 2020, BlackBerry utilized $47 million of net cash from operations against cash generation of $22 million in the year-ago period. On a reported basis, the company generated $14 million of free cash flow in the quarter.

Liquidity

As of Aug 31, 2019, BlackBerry had $460 million in cash and equivalents with $627 million of long-term debt. The cybersecurity software and services company’s total cash, cash equivalents, short-term and long-term investments were $938 million as of the same date.

Outlook

For fiscal 2020, BlackBerry has cut its revenue outlook due to weak demand for its software from companies and government agencies amid increasing competition. It currently expects non-GAAP revenue growth between 23% and 25%, compared to its earlier forecast of 23.

BlackBerry continues to invest in the right opportunities to drive long-term growth and profitability. Its strong product cycle, including exciting new launches in the next six months, instill optimism. Further, the company is integrating its endpoint management and artificial intelligence technologies on one platform to address the high-growth endpoint security market.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -100% due to these changes.

VGM Scores

Currently, BlackBerry has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 F. 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.


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