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BlackBerry Stock: Decent Earnings, But Investors Wanted More

On December 21, BlackBerry reported fiscal Q3 results that were decent. However, the all-around beat was not enough for investors. Here is why shares dipped after earnings.

BlackBerry’s  (BB) - Get BlackBerry Limited Report long anticipated fiscal Q3 earnings came in better than expected. The company delivered a top- and bottom-line beat that, at first, triggered bullishness in after-hours action. But the initial 4% share price spike quickly fizzled and turned into a loss on Wednesday.

Figure 1: BlackBerry headquarters in Waterloo, Canada.

Figure 1: BlackBerry headquarters in Waterloo, Canada.

Below, we review the highlights of BlackBerry’s earnings: how good was it, and what else did investors expect from CEO John Chen & Co.?

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BlackBerry’s Q3: all-around beat

Wall Street expected BlackBerry to post revenue growth of just 1% in fiscal Q3. However, the company delivered 4% instead ($184 million). For the bottom line, analysts projected a loss of 7 cents per share, but BlackBerry surprised by breaking even.

Figure 2: BlackBerry's stock surprise and estimates by quarter.

Figure 2: BlackBerry's stock surprise and estimates by quarter.

In a previous article, we listed a few questions to keep in mind ahead of BlackBerry’s third quarter earnings day. After the report hit the wires, we dug for some answers:

Will Cybersecurity deliver strong sequential revenue growth?

In this case, beauty is in the eye of the beholder. In the Cybersecurity unit, BlackBerry posted $128 million in revenues — a decent 7% increase from fiscal Q2, but a 1.5% decrease YOY. Head-to-head wins against other next-gen players and product launches helped to keep segment revenues afloat.

For the upcoming quarter, the company expects Cybersecurity to keep the growth rate intact around the low- to mid-single digit percentage points. Revenues are projected to land within the range of $125 million to $135 million, depending on certain large government deals.

Will IoT (internet-of-things) perform well despite the global chip shortage, which is likely to persist?

Yes. The company reported $43 million in revenue from IoT, representing 7.5% sequential increase from fiscal Q2 and 34% growth YOY. The jump was mainly driven by BlackBerry’s QNX, despite the supply chain headwinds.

Regarding fiscal Q4 outlook for IoT, BlackBerry seemed optimistic, as some supply chain improvement should nudge revenue growth towards the pre-pandemic run rate. The guidance range was $50 million to $55 million in sales, pointing at 16% to 27% growth.

Will BlackBerry IVY show progress in scaling new contracts?

According to CEO John Chen, BlackBerry made good progress on the IVY platform in fiscal Q3, including an early access version of the product. He also announced Bosch’s new software integration with the platform.

When asked about specific data points on IVY, the CEO said that feedback from partners has been positive. More information should be provided at CES (formerly Consumer Electronics Show), on January 5.

Will BlackBerry finalize its patent sales? If so, what will be the price tag?

Not yet — and maybe this was one of the key reasons why investors ran away from the stock after earnings. At least among retail investors on the discussion boards, there had been quite a bit of anticipation and speculation regarding the price tag on the patent sale.

The ongoing negotiations about the non-core portion of the portfolio patent have been taking longer than expected, according to CEO John Chen. However, he mentioned that a definitive agreement will be reached soon, and shareholders should be updated on the progress in January.

In fiscal Q3, licensing generated $13 million and 54% of gross margins.

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What to expect next

At first glance, BlackBerry’s fiscal Q3 performance was decent. The problem for the stock is that some of the short-term catalysts that could have sent the share price higher have yet to materialize, which may be causing the more risk-averse investor to throw in the towel early.

The most crucial one is BlackBerry’s sale of the non-core portion of its patent portfolio. We see both the risk of disappointment regarding the timing and negotiated price, as well as the possibility of a good deal being inked and causing a jolt of bullishness.

Next, the focus of attention turns to the Consumer Technology Association’s annual CES conference. News from BlackBerry could surface on matters like IVY software and, who knows, even the lingering patent deal.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)