What happened

Shares of BlackBerry Limited (NYSE:BB), 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?  

Cartoon characters confused by stock chart arrow falling and crashing into floor

Image source: Getty Images.

So what

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.

Now what

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.