What happened
Shares of BlackBerry (BB 1.80%) fell 33.1% in December, according to data from S&P Global Market Intelligence. The former smartphone giant, now refocused on cybersecurity and in-car infotainment systems, trended lower amid economic turmoil. The stock's biggest drop of the month came after the company reported third-quarter results on Dec. 20. BlackBerry's financial figures barely exceeded Wall Street's expectations, while management's forward-looking comments leaned conservative. Share prices plunged by 17% over the next two days.
So what
BlackBerry's reported numbers beat analysts' modest projections, but didn't exactly inspire confidence on their own. Sales fell by 5% year over year to $169.0 million, squeaking past the analysts' consensus figure of $168.7 million. On the bottom line, it delivered an adjusted loss of $0.05 per share, compared to a breakeven result in the prior-year period. Wall Street had expected something slightly worse, with the consensus predicting a loss of $0.07 per share.
On the earnings call, CEO John Chen noted that several "large potential government deals" were under negotiation, but said that those might not close before the end of the fourth quarter. That wasn't the confident outlook investors were hoping for, and the earnings surprise wasn't strong enough to support BlackBerry's stock price in the wake of these humble management comments.
Now what
The company's 2022 ended on a sour note, but things are looking somewhat better in January 2023. It's not a game-changing difference, but this distressed company could use some good news.
BlackBerry made a strong showing at CES 2023, the major consumer electronics show in Las Vegas, announcing several automotive software products and systems development partnerships. The customer list it unveiled at the event included Chinese electric vehicle maker Dongfeng Motors, German auto parts giant Bosch, and Italian car components veteran Marelli. Development tools for BlackBerry's QNX Neutrino operating system are now available on the Amazon Web Services cloud computing service, giving software developers access to a familiar environment where they can build, test, and sell their in-car apps.
So BlackBerry has plenty of irons in the fire, but those future business prospects are dependent on an auto industry that's in some distress. The worldwide shortage of semiconductors is starting to fade, but higher interest rates are now limiting the demand for new cars and holding back automakers' investments in manufacturing facilities. BlackBerry's top line has trended sharply downward in the COVID-19 era, and the company burned through $284 million in free cash flow over the last four quarters.
BB Revenue (TTM) data by YCharts.
This is not to say that BlackBerry is destined to fall off a cliff, but the company can hardly wait for a healthier car market, and its new focus on security software must carry a heavy load. Unfortunately, I don't know if BlackBerry can control its own future in the face of these brutal headwinds. I'll gladly stay on the sidelines of this turnaround story until and unless BlackBerry can show some real signs of sustainable improvement.
