Shares of BlackBerry Limited (BB 5.10%), the once-smartphone maker transformed into a security software specialist, crashed in Friday morning trading, and are now down 11.5% as of 11:05 a.m. EST.
The drop comes after BlackBerry reported earnings that it described as "solid" yesterday evening, and ahead of analyst expectations. Yet the shares are still down. Why?
From a pro forma perspective, BlackBerry did exceed expectations. Adjusted earnings for the fiscal third quarter 2020 were $0.02 per share, versus the $0.01 per share loss analysts had predicted. Quarterly adjusted sales of $224 million likewise exceeded forecasts for $219.7 million.
But here's the thing: According to generally accepted accounting principles (GAAP), revenue was only $218 million, an 18% decline from the second quarter last year. BlackBerry's gross profit margin on those sales also tanked, falling 590 basis points to land at just 68.3%.
Result: Despite making deep cuts to both research and development and other operating costs, BlackBerry's operating loss for the quarter quadrupled to $127 million, and the company's GAAP net loss more than tripled to $0.23 per share.
In short, BlackBerry management could make all the arguments it wanted about the quarter being "solid" -- but the numbers still look pretty glaringly bad. In total, BlackBerry has now racked up $830 million in losses over the past 12 months. Revenue is sliding and profit margins deteriorating.
Although the company is still generating cash ($56 million over the past year), at a current valuation of 83 times FCF, the stock looks overpriced to me -- even after today's sell-off.