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Why BlackBerry Limited Is Nosediving Today

By Brian Feroldi - Sep 24, 2019 at 10:46AM

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Shares tumble after the company reports mixed quarterly results. Here's what investors need to know.

What happened

In response to its releasing fiscal 2020 second-quarter earnings, shares of BlackBerry (BB -3.48%), a provider of enterprise software and services, had dropped 18% as of 10:22 a.m. EST on Tuesday.

So what

Here are the headline numbers from the period:

  • Non-GAAP (adjusted) revenue jumped 22% to $261 million. That fell short of the $266.2 million that Wall Street was expecting. 
  • Non-GAAP software and services revenue grew 30% to $256 million. Recurring revenue now makes up more than 90% of total sales.
  • Non-GAAP EPS broke even. That was better than the $0.01 net loss per share that analysts were projecting.
  • Free cash flow was $14 million.
  • Cash balance at quarter end was $938 million. 
Man with thumb pointed down

Image source: Getty Images.

CEO John Chen stated that he was pleased with the company's execution during the quarter: "We achieved break-even non-GAAP earnings per share and generated free cash flow even with increased investments in sales and product development to support future growth. We are encouraged by the positive reception on BlackBerry Intelligent Security, and we have a number of exciting new product launches in the next six months."

As for guidance, management now believes that non-GAAP revenue will grow 23% to 25% for the full fiscal year. That sounds good on the surface, but management was previously guiding for full-year revenue growth of 23% to 27%, so this update can be viewed as disappointing. For context, Wall Street was expecting revenue growth of 23.4% for the full year. 

As for the bottom line, BlackBerry expects to be profitable on a non-GAAP basis for the full year but didn't give an exact figure. Analysts are currently expecting $0.07 in adjusted earnings for the full year. 

Traders appear to be selling off the stock in response to the quarterly top-line miss and guidance revision. 

Now what

BlackBerry is currently trading at a multiyear low, which suggests that Wall Street doesn't believe this company has a bright future. However, a deeper view of the business shows that investors have reasons to be optimistic. The vast majority of revenue now comes from software and services sales, which are growing, high margin, and recurring in nature. Management is also making investments in the business to drive its next phase of growth

Offsetting that potential is that fact that BlackBerry has been a horrific stock to hold for the last 10 years -- shares have lost 92% of their value over the last decade -- and the company's name is still associated with its obsolete phone business. The onus is still on management to prove that the "new" BlackBerry is a much stronger and better business than ever before, and lowered guidance and a mixed earnings report aren't helping to change Wall Street's opinion of this business today.

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