This Canadian stock is beginning to restore its fortunes after falling from a dominant position in its industry.
Changing its focus from smartphones to software, the company is making inroads with new products such as software for self-driving cars. It recently enjoyed better-than-expected quarterly results. The stock has risen in the past year, but it may take time for earnings to catch up to the share price.
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BLACKBERRY LTD. (Toronto symbol BB; www.blackberry.com) provides wireless communication services, mainly to businesses and government agencies.
The company quit developing smartphones in 2016 as part of a plan to focus on its more promising communications software. It now licenses its brands and mobile phone software to cellphone manufacturers.
In January, the company launched its new Jarvis security software, which helps automakers protect the programs they use to power their self-driving cars from online and mobile intruders. BlackBerry will sell that cloud-based software to manufacturers on a pay-as-you-go basis. That should help the company attract a wider variety of clients instead of embedding the software under exclusive deals.
As a result of those moves, the stock soared 70% in the past year, although it lost some of those gains recently. However, it now trades at a very expensive 104.1 times the $0.10 U.S. a share that BlackBerry earned for its most recent fiscal year.
Growth stocks: Earnings in latest quarter beat the consensus estimate
In its fiscal 2018 fourth quarter, ended February 28, 2018, the company reported better-than-expected results. Revenue fell 19.5%, to $239 million from $297 million a year earlier (all amounts except share price in U.S. dollars). Even so, that beat the consensus forecast of $216.8 million.
The revenue decline is mainly due to the outsourcing of the development of new smartphones to other manufacturers as BlackBerry focuses on its more profitable software business.
Revenue from BlackBerry’s software and services business (91% of the total) rose 16.5% in the latest quarter. About 70% of the company’s software and services revenue comes from recurring subscriptions.
Sale of its phones and other mobile solutions (1%) dropped 96.4%. Due to a drop in the number of older BlackBerry handsets in use, revenue from the fees it charges wireless carriers to access its networks (8%) also fell 61.2%.
The company lost $10 million, or $0.02 a share, in the quarter. That’s a big improvement over its year-earlier loss of $47 million, or $0.10 a share.
If you disregard costs related to an ongoing cost-cutting plan and other unusual items, BlackBerry earned $0.04 a share in the latest quarter. That beat the consensus estimate of $0.01.
As well, BlackBerry’s gross margin (gross profits divided by revenue) improved to 78.7% in the quarter from 65.3% a year earlier.
The company ended the quarter with cash and investments of $2.3 billion, or $4.31 a share. Its long-term debt of $782 million is a low 13% of its market cap (the value of all outstanding shares).
The company has begun to see the benefits of its strategy to expand its security software business and quit making smartphones. However, it could take several more years for earnings to catch up to the stock price.
Recommendation in The Successful Investor: BlackBerry is still a hold.
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