BlackBerry Stock: Strong Earnings, Profitability Challenges Ahead

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BlackBerry NYSE: BB, one of the many companies that was once part of the “meme stocks” craze, is a technology firm that has transitioned its business from its handheld devices of the 2000s. The firm's operations now revolve around cybersecurity and Internet of Things (IoT) solutions. With a market capitalization of $1.5 billion, it's still a somewhat large firm but has experienced dreadful performance recently. BlackBerry Today BB BlackBerry $2.45 +0.24 (+10.86%) 52-Week Range $2.20 ▼ $5.75 Price Target $3.45 Add to Watchlist The share price is down nearly 54% over the last 12 months as of Jun. 26. This isn't surprising given it has reported negative to barely positive earnings over the last several quarters. The firm released its fiscal year 2025 first-quarter earnings on Jun. 26, 2024. Shares have been increasing since the earnings release as the firm nears closer to consistent profitability. Let’s dive into the company’s products and services, recent earnings report, and outlook for the future to understand how investors should think about the firm. Get BlackBerry alerts: Sign Up BlackBerry’s Business Lines: AI Cybersecurity and Internet of Things Solutions BlackBerry has two main cybersecurity solutions: Cylance and Unified Endpoint Management (UEM). Cylance utilizes AI to detect and prevent cybersecurity threats directed at endpoint devices such as smartphones, computers, and tablets. 24/7 threat monitoring and providing secure access to applications to prevent the loss of data are other essential features. It also provides intelligence tools to analyze trends in cyberattacks and help businesses find preventative solutions. Unified Endpoint Management works to secure information on mobile devices. This includes secure file sharing, voice and text messaging, and protecting information stored within apps. Two notable products in BlackBerry’s Internet of Things business are BlackBerry QNX and BlackBerry IVY. QNX provides real-time operating systems for connected devices in the automotive, medical, and industrial industries. These precise operating systems enable many custom-built machines, like those in a car, to converse seamlessly. BlackBerry IVY, developed with Amazon Web Services, uses AI to securely deliver data and insights to automakers. Automakers use this information to improve customer experiences. It's compatible with a wide variety of vehicle models and brands. BlackBerry monetizes these products through licensing agreements. Some competitors in the cybersecurity space include Broadcom NASDAQ: AVGO, CrowdStrike NASDAQ: CRWD, and SentinelOne NYSE: S. BlackBerry's Earnings Report: Solid Results Highlight IoT Growth But Cybersecurity Decline BlackBerry beat earnings per share (EPS) estimates by one cent, reporting a loss of $0.03 versus a $0.04 expected loss. It also beat on revenue, reporting $144 million versus $132 million expected. There were differing results for the cybersecurity and IoT segments. Cybersecurity revenue fell by $8 million from the previous year, while IoT revenue rose by $8 million. This equates to a decline of 9% for cybersecurity and a growth of 18% for IoT. BlackBerry Limited (BB) Price Chart for Thursday, June, 27, 2024 This has positives and negatives. Cybersecurity is the more significant segment, accounting for 59% of total revenue. Seeing the most critical segment of the firm's business contracting is a red flag. Yet, the IoT segment has significantly higher gross margins at 81% versus 59% for cybersecurity. Growth in the firm's higher-margin segment will go a long way in helping it achieve profitability. BlackBerry did well in increasing its overall gross margins to 67% from 48% last year, but revenue was down 61%. This contributed to an adjusted EPS of negative $0.03 versus positive EPS of $0.06 last year. BlackBerry needs to find a way to increase its gross margins and get back to its higher revenue levels if it's hoping to be consistently profitable. BlackBerry's Outlook: Challenges to Profitability Amidst Automotive Royalty Backlogs BlackBerry MarketRank™ Stock Analysis Overall MarketRank™ 2.01 out of 5 Analyst Rating Hold Upside/Downside 40.8% Upside Short Interest Bearish Dividend Strength N/A Sustainability N/A News Sentiment 0.38 Insider Trading N/A Projected Earnings Growth Growing See Full Details It seems unlikely that Blackberry will be able to achieve profitability this year. Its guidance shows a midpoint revenue of $602 million for the full year. This means, on average, it predicts quarterly revenue of $150 million. The firm had operating expenses of $135 million last quarter, a 29% drop from last year. It's hard to see how the company will be able to further reduce its operating costs to allow an overall profit once it accounts for costs of goods sold (COGS). COGS came in at $48 million last quarter. One source of hope for near-term profitability is the firm’s $815 million in royalty backlogs associated with systems it provides to automakers. These are payments the firm expects to receive that haven't been paid due to backlogs in automotive production. If automotive production picks up, it'll be a big boost for BlackBerry. The average updated analyst price target comes in at $2.90, implying a moderate upside. Before you consider BlackBerry, you'll want to hear this. MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and BlackBerry wasn't on the list. While BlackBerry currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys. 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