First, let’s go over BlackBerry Ltd.’s (TSX:BB)(NASDAQ:BBRY) third-quarter 2017 results to remind ourselves where things stand. Last quarter was a rough one; revenue fell, cash flow fell, and earnings disappointed.
Now, let’s go even further, back to 2014, when John Chen entered the picture and introduced the idea of transforming BlackBerry into a completely different animal. Back then, BlackBerry was on shaky ground, as cash burn (how fast the company burns cash and when will it run out) was the biggest issue, and the stock was therefore a very speculative one.
The cash balance at the end of the first quarter of 2014 stood at $2.7 billion, but with operating losses and capital expenditures of well over $1 billion per year, it was difficult to see the light at the end of the tunnel unless something drastic happened. And that is exactly what CEO John Chen proposed.
BlackBerry planned to step away from the consumer handset market, which the company completely exited in 2016, and would focus on software for the automotive and the healthcare industries. These markets played to BlackBerry’s strengths of heightened security and reliability and so were perfect matches for the company.
Today, BlackBerry remains mired in uncertainty. The company’s direction has been somewhat unclear, and the software market remains highly competitive. Revenue for the three months ended November 2016 fell 55% and fell 30% for the nine months ended November 2016. The company has $860 million in cash on the balance sheet, which was down from last quarter’s $957 million with $242 million of cash used in operating activities.
The company barely has earnings to speak of, and visibility is extremely low. The consensus expectation for fiscal 2017 is calling for EPS of $0.02 per share. With the stock trading at just over $9 per share, the whole situation still looks extremely speculative.
I would not buy this stock due to the unfavourable risk profile. I will definitely be watching, though, and as things progress and hopefully change for the better, it would be nice if this once darling Canadian technology stock became an attractive investment opportunity again. But it’s just not there yet.
Another Canadian company that is pursuing the automotive software market is Sierra Wireless, Inc. (TSX:SW)(NASDAQ: SWIR), which is now focused solely on the M2M business. Sierra is the opposite of BlackBerry in the sense that it is firing on all cylinders. Recent results came in way above expectations, the balance sheet is strong, and the company generates strong cash flows. This is the name to go to for exposure to the M2M industry.
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