BlackBerry's (BB 1.96%) stock surged 14% on March 31 after it posted its latest earnings report. For the fourth quarter of fiscal 2023, which ended on Feb. 28, the enterprise software company's revenue declined 18% year over year to $151 million but met analysts' expectations. It posted an an adjusted net loss of $13 million, compared to a net profit of $6 million a year ago, but its adjusted net loss of $0.02 per share still cleared the consensus forecast by a nickel.
For the full year, BlackBerry's revenue fell 9% to $656 million, which represented its third consecutive year of declining revenue. Its adjusted net loss also widened from $55 million to $103 million, or an adjusted loss of $0.18 per share.
Image source: Getty Images.
Those growth rates seem dismal, but investors seemed impressed by BlackBerry's narrower-than-expected net loss and promising outlook for fiscal 2024. Moreover, a lot of the bad news had already been priced in: BlackBerry's stock remains down nearly 40% over the past 12 months, and trades at just 3 times this year's sales. Can it bounce back this year?
What happened to BlackBerry over the past year?
BlackBerry splits its business into three main segments: the cybersecurity unit, which houses its namesake cybersecurity tools and Cylance (which it acquired in 2019); the Internet of Things (IoT) unit, which generates most of its revenue from QNX, the world's most popular embedded OS for connected vehicles; and the licensing and other segment unit, which mainly houses its patents. All three businesses grappled with significant slowdowns over the past year:
|
Segment |
Q4 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
|---|---|---|---|---|---|
|
Cybersecurity Revenue |
$122 million |
$113 million |
$111 million |
$106 million |
$88 million |
|
Growth (YOY) |
0% |
6% |
(8%) |
(17%) |
(28%) |
|
IoT Revenue |
$52 million |
$51 million |
$51 million |
$51 million |
$56 million |
|
Growth (YOY) |
37% |
19% |
28% |
19% |
8% |
|
Licensing and Other Revenue |
$11 million |
$4 million |
$6 million |
$12 million |
$10 million |
|
Growth (YOY) |
(78%) |
(83%) |
(60%) |
(8%) |
(9%) |
|
Total Revenue |
$185 million |
$168 million |
$169 million |
$169 million |
$151 million |
|
Growth (YOY) |
(12%) |
(3%) |
(4%) |
(8%) |
(18%) |
Data source: BlackBerry. YOY = Year over year.
The cybersecurity segment struggled with macro headwinds, which forced many of its government customers to rein in their software spending, and intense competition from higher-growth competitors like CrowdStrike (CRWD 0.39%) and SentinelOne (S 0.05%). It ended the fourth quarter with a dollar-based net retention rate of only 81%, while CrowdStrike and SentinelOne maintained net retention rates of more than 120% and 130%, respectively, in their latest quarters.
The IoT segment initially seemed poised for a strong post-pandemic recovery as the automotive market warmed up again, but the industry's growth was disrupted by supply chain constraints and rising interest rates over the past year. On the bright side, the segment is still securing new design wins, and QNX's backlog ended the year at a record high of $640 million. Therefore, the IoT segment could quickly recover if the macro environment improves and auto sales accelerate again.
BlackBerry's licensing and other business shrank significantly after it stopped licensing its brand to third-party device makers and eased off its patent litigation. It also recently struck a deal to sell most of its legacy patents for up to $900 million, so this business should continue to shrink in fiscal 2024.
As BlackBerry's revenue declined, its gross margin dropped from 65.6% in fiscal 2022 to 64.3% in fiscal 2023. Its adjusted operating margin also declined from negative 10% to negative 14%.
What will happen to BlackBerry in fiscal 2024?
BlackBerry's performance in fiscal 2023 was dismal, but fiscal 2024 might be a better year. The company expects its IoT revenue to rise 17%-21% as the macro environment improves and more automakers install QNX in their new vehicles. For the cybersecurity segment, it expects its revenue to rise 2%-8% and for its billings (which more clearly reflect the forward demand for its services) to grow 7%-20%. It didn't provide an exact full-year revenue forecast, but analysts expect 5% growth.
During the conference call, CFO Steve Rai said BlackBerry would focus on "driving toward both profitable growth and being cash flow positive" in fiscal 2024 as the gross margins for its IoT and cybersecurity businesses expand. Rai also predicted it would post a "significantly lower EPS loss" for the year, but he didn't provide an exact forecast.
BlackBerry's business could certainly stabilize in fiscal 2024, but investors might think it deserves to trade at a low price-to-sales ratio as long as it generates low single-digit sales growth. Moreover, plenty of other tech stocks are also growing faster but trading at more attractive valuations. For example, Twilio, the cloud-based communications company that is expected to generate 12% sales growth this year, trades at 2 times that forecast. CrowdStrike and SentinelOne trade at 9 and 6 times this fiscal year's sales, respectively, but they're both growing much faster than BlackBerry.
Based on those comparisons, I believe BlackBerry's stock will stagnate this year until it proves it can overcome the macro and competitive headwinds. For now, investors should stick with more promising cybersecurity or IoT companies instead.
