BB - BlackBerry: Investors Have Some Hope

2023-03-30 19:05:54 ET

Summary

• Q4 key metrics mixed as cybersecurity struggles continue.
• Guidance was decent, but management has to deliver.
• Stock looking to recover recent losses.

After the bell on Thursday, we received fiscal fourth quarter results from BlackBerry ( BB ). The company has continued to see its revenue base dwindle over the years, leading to its stock price significantly underperforming the market. While the Q4 results were not that great when you include the recent revenue warning, there are some hopes moving forward that the worst may be behind us.

For Q4, the company came in with revenues of $151 million, down from $185 million in the year-ago period. We knew roughly what this top line figure would be, as management provided a big revenue warning recently . The main issue was the Cybersecurity segment, which saw its revenues plunge year over year from $122 million to $88 million. The annual recurring revenue ("ARR") for this business continues to decline, down another $15 million in Q4 to $298 million. The Dollar-Based Net Retention Rate also dipped another 3 percentage points to 81%. The declines are even worse if you go back a year, as they stood at $347 million and 91%, respectively.

When it comes to the adjusted bottom line, the company beat as it usually does after making many adjustments. Some of these are key business expenses, like stock-based compensation. When looking at GAAP results, the operating loss excluding items was $49 million, which represents a margin of negative 32.4%. The operating loss was roughly 2.5 times what was seen in Q4 a year earlier.

On the conference call, management provided a decent forecast, but one that comes with an asterisk. The company is calling for full-year revenues of $685 million to $720 million. While that's in-line to above the street's average estimates of nearly $691 million, we can't forget that a year ago analysts were looking for more than $900 million. Cybersecurity revenues are expected to be $425 million to $450 million, up from $418 million. IoT revenues are expected to again be the percentage growth leader, coming in at $240 million to $250 million, up from this year's $206 million. Licensing revenues are expected to be about $5 million per quarter.

For Q1, guidance calls for revenues in a range of $155 million to $168 million, while the street was at $155.5 million. Of course, we've seen guidance cuts almost quarterly from BlackBerry in recent years, so we'll have to see if this forecast, as well as the full year one, holds. Cybersecurity ARR growth is expected to return in the back half of the year. The QNX royalty backlog also increased by $80 million to $640 million in the last three quarters of the year. Going forward, BlackBerry will update the QNX backlog at the end of each fiscal year, instead of Q1 as it had been doing recently.

Total cash and investments were $487 million at the end of the fiscal year, down $283 million in the 12-month period, although more than half was due to a legal settlement. About three quarters of that cash will be needed to pay back the company's debt coming due later this year, unless the stock gets back above $6 and then it could be converted to equity. The good news is that BlackBerry recently struck a new patent sale deal that could bring in some fresh capital, which hopefully if it closes as expected in fiscal Q2 will end a multi-year process that has dragged on too long and frustrated investors.

Going into Thursday's report, the average price target on the street was down to $4.79, coming down another roughly 5% since the recent revenue warning. That's probably a decent valuation in the near term, assuming the company can get back to growth as expected. Of course, a year ago the street saw the name worth almost $8 a share, but continued revenue misses have driven that average down.

In the end, BlackBerry finished its fiscal year on a sour note, delivering its lowest revenue print in the nearly 10 years CEO John Chen has been at the helm. Management does expect things to be turning higher this year, although that narrative hasn't always come to fruition here. BB stock has been a terrible performer under Chen's leadership, so investors are hoping that a return to revenue growth could put a floor in shares.

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