As BlackBerry Ltd. Loses Last Week’s Gains, What Could Happen This Week?

BlackBerry Ltd.’s (TSX:BB)(NASDAQ:BBRY) stock enjoyed a short-lived share price rally on Wednesday last week after breaking some good news of a new partnership deal with Delphi Automotive Plc (NYSE:DLPH), but the gains were almost all lost by Friday, September 22, after a ~5% plunge before the market closed for the week.

The stock could not maintain its valuation gains for two trading sessions, after a TSX rally from ~$11.17 to $12.15 on Wednesday was followed by a small decline on Thursday before a huge plunge on Friday to close the week at $11.26.

BlackBerry had its share price bounce by 8.58% on September 20, after announcing that Delphi Automotive, a significant player in the budding autonomous driving space had chosen to go with BlackBerry’s QNX software as the secure operating system of choice for its self-driving technology due to launch in 2019.

Could there be another move this week as the company reports quarterly results on September 28?

Case for a bullish run

BlackBerry’s sequentially falling quarterly revenues are expected to bottom out in two quarters from now, and analysts expect the strategically re-focused technology firm to show sustainable revenue growth from next year going forward.

However, with a revenue estimate of ~US$221 million for Thursday’s report, the numbers are pretty close to the US$235 million in GAAP top line reported last quarter. Considering the recently abating rate of software and services access fees (SAF) revenue decline, there is potential for a positive surprise, and BlackBerry might beat the Street’s estimates.

Even if BlackBerry misses on revenue, there is this accounting phenomenon of fair-value reporting I once discussed here that could easily boost BlackBerry’s bottom line for the quarter. The significant share price decline on the stock between June 1 and August 31 will reduce the fair value of BlackBerry’s outstanding convertible debentures.

A decline in the fair value of debt from a previously bloated balance in the last report will be reported as a gain on the income statement.

Whether or not investors should include or deduct this gain from BlackBerry’s books when analyzing the report remains a controversial topic, but the decline in fair value of the debentures will definitely boost the reported bottom line and impress some punters.

However, for long-term investors, the normalized earnings will be more critical, and even these may induce some bullish sentiment if BlackBerry shows a sustained annualized double-digit growth in its already promising software and services portfolio, where the latest QNX and Radar deals could add some traction in the next two years.

Most noteworthy, it has been five months since the Qualcomm arbitration award, which boosted BlackBerry’s cash coffers last quarter, and the market has been waiting patiently for CEO John Chen to announce a potential acquisition that could accelerate revenue growth for the firm.

Even though Chen may not want to make a purchase during these high market times, where valuations appear too rich for his liking, his team is under pressure to deliver revenue growth.

Something might give, all to the market’s joy, and the stock may rally again.

Risk of a plunge

The quick wiping away of last week’s gains could be a telling sign that investors are tired of the hype and rumours sustaining BlackBerry’s stock valuation.

If this is the case, then a revenue miss or any slight investor disappointment on Thursday might result in the stock tanking big time.

Foolish bottom line

The recently announced Delphi and Fleet Complete partnerships could prove to be something, as BlackBerry modestly grows its high-margin software and services portfolio, while the nearly US$2 billion cash pile before share buybacks provides a clear share valuation support.

However, there is still a long road to sustainable GAAP profitability, and the lack of hard numbers in BlackBerry’s recently announced deals fail to back up market confidence, leaving investors and analysts to speculate on the stock’s prospects.

This is high-risk territory, and BlackBerry’s valuation may become more volatile as the week progresses.

It’s safer to watch on the sidelines, and it may be wise to hold on to an open position on the ticker, but speculative gains could be reaped on Thursday, too.

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Fool contributor Brian Paradza has no position in any stocks mentioned. Tom Gardner owns shares of Qualcomm. The Motley Fool owns shares of Qualcomm.

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