ZS - BlackBerry Earnings Preview: 3 Things To Watch

2023-12-15 08:00:00 ET

Summary

• Analysts expect BlackBerry to post yet another quarterly loss at a time when markets shun money-losing firms.
• BlackBerry's new CEO offers fresh hope, since John Giamatteo has experience in the cybersecurity and IoT automotive industry.
• BlackBerry's decision to cancel its IoT spinoff may not be fully explained; impact of weak quarterly earnings on stock price discussed.

After shares of BlackBerry ( BB , [[BB:CA]]) consolidated from its summer high of around $5.60 to around $3.30, long-time suffering shareholders will scrutinize its third quarter results. The company will post third quarter 2024 earnings on Wednesday, Dec. 20. I last rated BB stock as a hold in which the share price fell by almost 9%. The S&P 500 ( SPY ) rose by more than 50% in that time.

What are the financial results that investors should expect? Will management address its succession plans under John Giametteo’s Chief Executive Officer leadership? What's the business strategy after BlackBerry scrapped its plans to spin off its IoT business through an initial public offering?

1/ Expected Financial Results

Analysts expect BlackBerry to post a quarterly loss of two cents a share normalized and a four-cent loss under GAAP.

Three analysts issued negative EPS revisions in the last 90 days. They expect quarterly losses to continue into the next three quarters through FQ2 2025. Readers will notice the unusual profit posted on FQ1 2024, which beat estimates by 11 cents a share.

From its Q1/2024 transcript, the firm said that "the $235 million of Licensing and other revenue represents the $17 million of revenue from pre-existing arrangements that John mentioned earlier, and $218 million relating to the patent sale."

Unfortunately for shareholders, the one-time gain failed to convince buyers to enter.

BB stock resumed its descent, which ended between October and November. The S&P 500’s rise attracted speculators to bet on the firm’s turnaround.

Q2/2023 Results Summary

The previous quarter might help investors gauge the upcoming earnings report. The firm posted a non-GAAP EPS loss. Revenue slumped by 21.4% Y/Y to $132 million . Its $519 million in total cash, cash equivalents, and short-term and long-term investments is the only positive data point. Cash decreased by $59 million in the quarter.

The results did not earn executive confidence. On Oct. 2, 2023, BlackBerry’s legal officer and corporate secretary Philip Kurtz sold 15,798 shares for $4.57, raising $72,196.86 .

The now ex-CEO John Chen, who retired in November , tried to put a positive spin on the company’s prospects. Chen said that QNX secured 20 new design wins in the automotive sector and seven in general embedded market verticals. He said that “the largest of these was an eight-figure estimate lifetime revenue ADAS win with one of the top five global automakers to deploy our QNX OS for safety.”

Related Investments

Growth investors may look elsewhere. Aptiv ( APTV ) specializes in software and systems for mobility solutions . It pivoted its growth in the electric vehicle architecture and driverless vehicle technology market.

NXP Semiconductors provides processing power to help its customers in automotive design for advanced driver assistance systems. Readers may view a comparison among BB, APTV, and NXPI stocks .

BB stock is the smallest among the comparable firms yet has the most analysts covering the stock. This suggests that Wall Street’s attention to Aptiv and NXP could send their stock price higher.

BB outperformed Aptiv in recent weeks:

BB stock scores highest on growth with an A- grade. Conversely, NXP Semi has the highest industry rank at six out of 66:

2/ New Leadership

BlackBerry’s new CEO has a better chance of outperforming his predecessor. Chen tried to pivot the firm out of the smartphone decline into mobility management, IoT, and cybersecurity. Unfortunately, investors fared better holding Sentinel One ( S ) and CrowdStrike ( CRWD ). Okta ( OKTA ), where hackers accessed its service desk data, also outperformed BlackBerry.

You may run the comparison here .

Above: Zscaler ( ZS ), a cloud security firm, posted revenue growth of 39.7% Y/Y in its Q1 report .

CEO Giamatteo was previously the company’s President of Cybersecurity . He had hands-on experience enhancing the product portfolio, and go-to-market strategy, and achieved organizational efficiency. He was formerly the president and chief revenue officer at McAfee.

Investors may anticipate that the new CEO will invest further in cybersecurity. CEO Giamatteo has experience in the IoT automotive industry. He should have the competence to extract synergies in Cylance and IoT.

3/ IoT Spinoff Scrapped

BlackBerry is unlikely to offer unique insight into its decision to cancel the IoT spinoff. Its share price trades near multi-year lows. More importantly, the stock market will not pay a premium for businesses posting quarterly losses.

Management will discuss its need to cut costs aggressively. Each division needs to run more efficiently to achieve positive cash flow and profitability. However, how it unlocks shareholder value through several strategic alternative options is unknown. A weak quarterly earnings report and another loss will only encourage investors to sell BB shares. They have only a few weeks left before qualifying for tax-loss selling.

Your Takeaway

The newly appointed CEO Giamatteo will take advantage of the fresh start by writing down assets and cutting costs. That will slow its cash burn rate. To win back investors, BlackBerry needs business growth in QNX, IoT, and Cylance. Without that, the stock risks falling back to 52-week lows after its earnings report.

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