CA - BlackBerry: Another Large Revenue Warning

2023-03-08 07:30:00 ET

Summary

• BlackBerry reports weak preliminary Q4 revenues.
• Long-term revenue targets to be revised in coming months.
• Shares continue to massively underperform the market.

One of Tuesday's biggest losers happens to be BlackBerry ( BB ). The Canadian technology name is seeing its shares plunge after management released a set of preliminary Q4 revenue results . Unfortunately for investors, the news was a massive revenue warning, another hit against this executive team that continues to struggle. As we approach the 10 year anniversary of John Chen being named interim (and later permanent) CEO of BlackBerry, investors continue to be extremely frustrated here.

For the fiscal Q4 period that ended in February, the company expects total revenues to be about $151 million. This number was about $15 million below street estimates, and when the official figure comes out, will be the lowest quarterly revenue print recorded under John Chen. Don't forget that since the Q3 report, the average estimate for Q4 revenues had come down by $13 million, so this is a tremendously bad result. A year ago, estimates were calling for over $240 million in revenues during this period, just to show you how much growth hopes have been crushed.

The main culprit for the terrible results was again the Cybersecurity segment. Management blamed macro weakness during the period, as elongated sales cycles in government areas caused some large deals to slip into later quarters. Revenue here of just $88 million was down dramatically from the $122 million reported in the year ago quarter. Also, while IoT revenues edged up slightly to $53 million, the total for the year of $206 million was towards the lower end of the $205 million to $210 million guidance range given just a few months ago.

While I know some bulls will talk about this just being a delay in revenue recognition, this is a company that continues to disappoint. The company is also taking a large non-cash goodwill impairment charge for its Spark reporting unit that could be well over $400 million. This will reduce the amount of total assets on the balance sheet, further weakening the company's financial flexibility. Perhaps worse yet though is the following press release statement:

Management is currently reviewing its long-term targets for the Cybersecurity business unit and intends to provide revised targets on, or before, its Analyst Day on May 17th, 2023.

Investors were hoping that we had seen a revenue bottom for BlackBerry earlier in fiscal 2023. The Q4 results knocked that wish down, and the above statement likely means we'll see future growth hopes reduced yet again. As a reminder, the following graphic shows some of the revenue targets for the fiscal 2027 period which is getting closer by the day.

This new revenue low is also troublesome when you consider the losses that BlackBerry is reporting each quarter. Here, I'm talking about true GAAP losses, not the adjusted numbers that management talks about that take out several key business expenses. Actions have been taken to reduce costs and certain investments, but large enough losses lead to long term cash burn. The company is only a few quarters away now from having to pay back its convertible notes, which will dramatically reduce the cash pile until management can finally get its patent sale done.

The BlackBerry quarter is even more disappointing when you see what competitor CrowdStrike ( CRWD ) reported after the bell. CrowdStrike announced another double beat of street estimates while providing strong revenue guidance for the current quarter. CrowdStrike has put up some of the best growth numbers in this space in recent years, and continues to add a tremendous amount of annual recurring revenue ("ARR") each quarter. That was something that BlackBerry investors were hoping to see when BlackBerry acquired Cylance. Unfortunately, BlackBerry revenues aren't even growing at all, with its Cybersecurity ARR continuing to decline.

Going into the latest revenue warning, the average price target on the street was down to just over $5 a share. While that implies significant upside from Tuesday's $3.50 close, analysts are likely to cut their targets moving forward given the recent news. Just a year ago, the street saw this name worth more than $7 a share, but we probably will see that number with a 4 handle in the coming weeks.

In the end, BlackBerry issued a revenue warning this week that sent shares tumbling towards a new 52-week low. The Cybersecurity segment is seeing significant sales pressures still, and management is having trouble closing deals with government customers. It appears that the company is going to cut its revenue targets in the coming weeks, something I previously thought was possible, so analysts will likely be cutting their price targets yet again. This name continues to massively underperform the overall market under John Chen's leadership, and the latest news isn't likely to gain him any new fans.

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