BlackBerry (NYSE:BB), the smartphone pioneer that has since reinvented itself as a provider of cybersecurity and automotive software, has seen its stock price rise by over 20% over the last month. While the stock rallied strongly in late May and early June, driven partly by interest from Reddit traders who’ve piled into highly shorted stocks, it has corrected a bit following BlackBerry’s mixed Q1 earnings last week. Here’s a quick overview of some of the recent developments for BlackBerry.
Over Q1, BlackBerry saw its revenues decline by about 15% year-over-year and by about 17% sequentially to about $174 million, slightly better than street estimates. BlackBerry’s net loss was in line with expectations. While the revenue decline was primarily due to lower licensing revenues, which are typically volatile, BlackBerry saw its Internet Of Things software sales rise sharply by almost 48% year-over-year to $43 million, as demand for its QNX operating system, which is used in automobiles, jumped. Gross margins also trended a bit lower to 65.5%, due to a lower mix of high-margin licensing revenue.
Last week, BlackBerry also provided some updates regarding its QNX business, noting that the software is now embedded on over 195 million vehicles, up 20 million from the prior year. BlackBerry said that its QNX royalty revenue backlog had increased 9% compared to last year to $490 million at the end of its Q1’22. While the business is still small in the context of BlackBerry’s revenues, the company expects it to expand driven by multiple trends, including a higher amount of safety-focused software in vehicles, and the transition to electric and autonomous vehicles. For example, the company said that it has design wins with 23 of the top 25 electric vehicle makers.
Multiple high-profile hacks and increasing digitization of business following Covid are likely to force companies to double down on cybersecurity. See our indicative theme of Cyber Security Stocks for a list of companies that stand to benefit from the trend.
[6/2/2021] Why The BlackBerry Stock Rally Won’t Last
BlackBerry stock (NYSE: BB) rallied by over 30% over the last five trading days, significantly outperforming the S&P 500 which has remained roughly flat over the same period. The rally appears to be driven by trends similar to what we witnessed this January, as groups of retail investors doubled down on small and mid-cap stocks with a high level of short interest, in order to set off sharp price increases and put pressure on short-sellers. BlackBerry – with a near single-digit stock price – and short interest of almost 10% is likely to have been a beneficiary. Now, is BlackBerry stock set to rally further or should we expect it to correct from current levels? We believe that there is a strong chance of a decline in BlackBerry stock over the next month (twenty-one trading days) based on our machine learning analysis of trends in the historical stock price. See our analysis on BlackBerry Stock Chances Of Rise for more details.
We also think the longer-term outlook for BlackBerry stock is tough. BlackBerry plays in some very high-growth markets, including automotive software and cybersecurity, and has made multiple strategic acquisitions and forged many high-profile partnerships. However, competition in these markets is intense and BlackBerry’s execution thus far has been lackluster. Revenues have declined almost consistently over the last decade and are poised to fall again by 10% this fiscal year. Meaningful profitability is also not looking likely in the near term. BlackBerry’s valuation appears high relative to historical levels, with the stock trading at almost 8x forward revenues, compared to levels of just over 3x at the end of last year.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market since 2016