Spring Sale
Shares of Canada-based Blackberry (TSX:BB) surged in recent trading sessions after the tech company beat consensus revenue and earnings estimates in fiscal Q1 2024 (ended in May).
BlackBerry reported revenue of US$373 million in Q1, an increase of 122% year over year, while adjusted earnings stood at US$0.06 per share, compared to a loss of US$0.01 per share in the year-ago period. Bay Street forecast BlackBerry to report revenue of US$214 million and an adjusted loss of US$0.05 per share in fiscal Q1.
So, what drove BlackBerry’s revenue and earnings higher in its most recent quarter? A majority of the company’s top-line growth can be attributed to the sale of patents worth US$235 million. If we exclude patent sales, BlackBerry’s revenue in the May quarter would be less than US$140 million, significantly below estimates. In the year-ago quarter, BlackBerry earned just US$4 million from its patent business.
How did BlackBerry perform in Q1?
BlackBerry’s main business segments include cybersecurity and the Internet of Things (IoT), which accounted for 97.6% of total sales in Q1 of fiscal 2023. However, in the last quarter, cybersecurity sales declined by 18% year over year to US$93 million, while IoT revenue was down 12% at US$45 million.
BlackBerry acquired Cylance in 2019 at a hefty sum of US$1.4 billion to gain traction in the rapidly expanding cybersecurity market. According to a research report published by Fortune Business Insights, the global cybersecurity market is forecast to grow from US$172 billion in 2023 to US$425 billion in 2030, indicating an annual growth rate of 13.8%.
But BlackBerry continues to disappoint shareholders as its cybersecurity division is not taking off and has experienced falling sales in each of the last four quarters.
BlackBerry’s IoT business primarily generates sales from QNX, which is an embedded operating system for connected vehicles. A tough macro environment has forced automobile manufacturers to delay connected vehicle plans in the near term, explained BlackBerry.
Despite these mediocre numbers, BlackBerry stock surged around 7% following its quarterly results as investors remain optimistic about its patent sales. BlackBerry sold a portion of its patent portfolio to Key Patent Innovations, or KPI, in an all-cash deal valued at US$170 million. In the earnings call, BlackBerry CEO John Chen claimed its licensing deal with KPI could be worth much higher at US$900 million.
What next for BlackBerry stock and investors?
Due to this licensing deal, analysts now expect BlackBerry sales to rise by 39% to US$912 million in fiscal 2024. Chen also emphasized cybersecurity sales should stabilize in the next two quarters, but BlackBerry continues to wrestle with competition from threat detection market leaders such as CrowdStrike.
BlackBerry now expects revenue to grow between 12% and 15% annually in the next three years. At its midpoint forecasts, cybersecurity sales might grow by 10.5%, while IoT sales might increase by 20%.
Priced at 3.3 times forward sales, BlackBerry stock remains expensive as it is yet to generate consistent profits. Moreover, far better tech stocks are growing at a faster pace to buy and hold right now.
Analysts tracking BB stock expect it to gain 7% in the next 12 months.
