MENU

BlackBerry Ltd. Posts a Strong Q2 and Gives Investors Many Good Reasons to Buy Today

BlackBerry Ltd.  (TSX:BB)(NASDAQ:BBRY) released its second-quarter results on Thursday which saw the company post revenues of $238 million for a year-over-year decline of 29%. However, BlackBerry was able to post a profit of $19 million compared to a loss of $372 million a year ago. The company posted negative earnings per share of $0.07, which is still an improvement over a loss of $0.71 in 2016.

Those are the highlights of the earnings report, but I’ll dig a bit deeper to see if these results make the company a good buy today.

Software sales reach record highs

Sales of $185 million across its software segments were up 34% from last year, as the company continues to move away from its legacy segments, which focused on handheld devices and operating system-related revenues. Software made up 77% of total revenue this quarter compared to just 41% a year ago.

Improvement in gross margins has led to a stronger bottom line

As a result of focusing more on software and less on hardware, BlackBerry has seen its gross margins of just 29% in 2016 rise to over 73% this quarter. Despite a significant drop in revenue, the company was able to gross $175 million this quarter compared to just $98 million a year ago for an increase of 79%.

Operating expenses down 22%

If we look at operating expenses, we can see that the company has found many efficiencies as expenses of $267 million (excluding impairment, losses, and fair-value adjustments) were just $209 million this quarter.

Fair-value adjustments put the company into the black and help comparables

BlackBerry had a strong quarter and saw improvements in operations and its top line, but it wouldn’t have been able to post a profit without a $70 million fair-value adjustment in its debentures. Without this adjustment, the company would have seen an operating loss of $48 million.

In the previous year, BlackBerry saw a $62 million loss in its fair-value adjustments, meaning year-over-year operating expenses that look to have decreased by $300 million have been helped by $132 million in favourable fair-value adjustments. The company also saw a loss on sale of $124 million last year, meaning that $256 million of the improvement in the operating expenses, or 85%, was due to fair-value adjustments and losses.

What does this mean for investors?

There is certainly a lot of good that the company has done and achieved in this quarter, but if you just look at the top and bottom lines, there is a lot that you will miss. The bottom line got a boost from adjustments in Q2, and some year-over-year comparables are inflated as well.

However, BlackBerry is continuing to grow its software-related sales, and it’s very encouraging to see the company have such an improvement in its gross margin. If it can maintain these margins and add sales, then the company will be able to consistently post strong profits.

Overall, these are good results for BlackBerry and an encouraging sign that the company is on the right path as it refocuses on newer, higher-margin products and services. This is definitely a stock you should consider picking up today, as the share price has lost 12% of its value in the past three months and could be a great buy for the long term.

Announcing: Our #1 TSX pick for the AI revolution!

Bay Street and Wall Street experts agree: The AI revolution is set to be "bigger than the internet." That's why Iain Butler and the Stock Advisor Canada team have just released a brand-new report detailing their #1 TSX pick poised to profit from this next tech tidal wave.

Discover their #1 TSX pick now. This could be your chance to get in on the ground floor!

Click here to discover more!

Fool contributor David Jagielski has no position in any stocks mentioned. 

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.