What happened
Shares of BlackBerry (BB +1.02%) rallied on Thursday, jumping as much as 13.8%, before retreating to a 6.7% gain at the end of the day's trading.
The jump came following the company's first-quarter earnings, in which BlackBerry beat revenue and earnings estimates by a huge amount. But much of that beat was due to a sale of the company's patents, which made up $235 million of the company's $373 million in revenue.
So, it wasn't quite the blowout investors might have thought when first glancing at results. In fact, the $235 million in patent sales was greater than the amount of the revenue beat over expectations. That means absent the sale, revenue would have actually come in a bit light.
Nevertheless, investors still seemed to react favorably to results. Here's why.
NYSE: BB
Key Data Points
So what
Why did BlackBerry shareholders like these results at all? After all, outside of patent sales, both BlackBerry's cybersecurity and Internet of Things (IoT) software revenue was down year over year.
Likely, this is because, as is the case with most turnaround stories, investors were looking at the sequential trends to try to find a bottom in the cycle or downturn, and could therefore be able to anticipate a pathway to recovery.
To that end, BlackBerry's cybersecurity software products, which are a key technology in protecting government devices, saw some sequential growth, at $93 million in the May quarter versus $88 million in the February quarter. While still down from the $113 million seen in the year-ago quarter, the fact that cybersecurity revenue seems to have bottomed out was a positive sign, given that it's the company's biggest segment.
On the other hand, IoT revenue still struggled, falling 11.8% year over year and a larger 15.1% quarter over quarter.
CEO John Chen addressed this in the press release:
In our IoT business unit we saw some temporary delays to the start of new programs as a number of customers review their plans to capitalize on the software-defined vehicle (SDV) trend, impacting revenue this quarter. However, we see no change to the strong secular trends that are a multi-year tailwind for QNX and BlackBerry IVY. We continue to expect to achieve revenue consensus for both our IoT and Cybersecurity business units this fiscal year.
Now what
Taking its numbers for fiscal 2023, which ended in February of this year, BlackBerry still trades around 4.7 times sales. Meanwhile, the company still doesn't have earnings on the basis of generally accepted accounting principles (GAAP), although it did just post a modest adjusted (non-GAAP) earnings per share of $0.06 last quarter.
That's not terribly expensive for a software stock, but BlackBerry isn't really a typical software play, as it's still posting year-over-year declines. While the sequential growth in cybersecurity revenue was a positive, the fact that the company is still posting annual declines with uncertain ultimate profitability makes it hard to say if BlackBerry stock is a value. And yet, shares are up roughly 60% on the year.
With the stock up that much, high competition in both the cybersecurity and connected-car markets, and so much uncertainty around the company's turnaround, I would proceed with caution with BlackBerry stock and hold off on buying, despite today's positivity.
