Ahead of posting first-quarter fiscal year 2025 results post-market on June 26th, BlackBerry Limited (NYSE:BB) shares broke below the 50-day simple moving average near $3.00. After spiking above $3.50 on May 14, 2024, thanks to the GameStop (GME) meme-inspired rally, BB stock is down by 16.5% in the last quarter.
What are markets fearful of ahead of its Q1 results? The GME stock run-up may have inadvertently prompted BlackBerry shareholders to sell now and ask questions after the report.
Investors have four things to consider.
1. Meme-Inspired Rally
GameStop took full advantage of retail investors rushing to buy the stock. When shares spiked to around $65 on May 14, 2024, the struggling retailer issued more shares to raise around $933 million. On June 7, 2024, the firm reported the completion of an at-the-market equity offering. The 75 million share offering raised approximately $2.137 billion.
AMC Entertainment (AMC) took advantage of the sudden stock rally by raising $250 million on May 14, 2024.
Before the stock sale from those two firms, speculators who bought BB stock at $3.00 had a short-lived chance to sell the stock above $3.80. Long-term investors, however, should express disappointment that BlackBerry did not announce an ATM share offering. In the last quarter, the company reported net income of $3.0 million. Earnings from continuing operations were negative $56 million. Cash from operations fell by $15 million.
BlackBerry ended the February quarter with $237 million in cash and short-term investments.
2. BlackBerry Q4 2024 Results
In the last quarter, BlackBerry reported adjusted earnings per share of $0.03. Revenue of $173 million benefited from a 5% Y/Y growth from the cybersecurity division. Chief Executive Officer John Giamatteo said that the company is “making good progress with efforts to both separate the divisions and drive towards profitability.” He highlighted operating cash usage fell by more than half.
On the conference call, the CEO said the company achieved $55 million in savings, with $35 million from the cybersecurity business and $20 million from its central general and administrative functions. To improve its transparency concerning costs, BlackBerry will report sales and marketing separately from G&A.
Shareholders should appreciate firms that report more data. Whenever other firms hide customer subscription data or aggregate sales or costs together, investors cannot make an informed decision.
3. Q4 Charts
From the tables and charts Seeking Alpha News prepared, readers have three revenue charts to review. Revenue from cybersecurity increased Y/Y, but is below the $105 million threshold achieved before FQ3/2023:
Investors are looking for annual recurring revenue to improve. Over 40% of legacy solutions in the endpoint market drags Cylance’s growth. To stabilize and pivot for growth, CEO Giamatteo said on the conference call that the company initiated higher customer engagement activities. Look at the company’s marketing expense line in the upcoming report. Earnings will increase if the firm upsells new solutions to legacy customers.
IoT revenue growth is a positive catalyst. Since bottoming at $45 million in Q1, revenue is at its highest point in two years.
BlackBerry must overcome customer revenue delays by working through the complexity of software-defined vehicles. It will assign more engineering resources to help its customers with integration activities. Still, the CEO observed sluggishness in getting new software-defined vehicle programs launched.
If this market is more certain, BlackBerry needs to update the market with a definitive revenue outlook in IoT in the upcoming report.
The licensing segment is not a big contributor to overall revenue. The company expects to report around $4 million quarterly ($16 million annualized).
SDP 8.0, announced in Jan. 2024 at CES, is a potential growth catalyst. The firm has a leading chip supplier buying some of its developmental tools. Additionally, it is supporting Stellantis (STLA) in its work on the first virtual co*ckpit platform.
Readers invested in the automotive sector will notice that STLA stock fell sharply as BlackBerry did. The stock lost 28.7% in the quarter. Markets are wary of Stellantis' partnership with China battery manufacturer CATL. Last Oct. 2023, it invested EUR 1.5 billion in China’s Leapmotor. Chinese EV makers as Europe implements tariffs. The U.S. added a 100% tariff on Chinese EV exports.
4. Risks: Quant Warning On BB Stock
On Jun. 13, 2024, Seeking Alpha’s Quant system flagged a warning that BB stock is at high risk of performing badly. With a quant score of 1.65/4.0 (“Sell”), the stock scores a D- on the momentum grade.
The sell recommendations vastly underperformed the S&P 500 as represented by SPDR® S&P 500 ETF Trust (SPY).
Your Takeaway
Stock market investors have decided ahead of its quarterly report that BlackBerry Limited will not offer meaningful catalysts that would lift the stock. Investors who value the quant rating will heed the sell warning.
BlackBerry Limited stock has fair value, profitability, and revision grades. It has a good growth grade, but also has many scores that are not meaningful (“NM”):
The upcoming report will provide shareholders with more insight on the company's growth. From there, investors may decide whether to keep holding the stock or to sell.
