MENU

Should You Buy BlackBerry Ltd. Stock After its Earning Surprise?

BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has surprised many investors in the past several weeks, despite doubts over its turnaround strategy’s success.

The latest in a series of positive news is the company’s better-than-expected earnings in the second quarter, boosted by a 26% jump in software and services revenue.

The second-quarter results sent BlackBerry shares soaring 14% on September 28, rekindling hopes that the CEO John Chen’s strategy to focus on selling software to industrial companies, governments, and corporations is working after the company’s smartphone business collapsed.

Higher licensing fees boosted quarterly software and services sales to US$56 million from US$16 million a year earlier, helping the company to post US$0.05-a-share profit, excluding special items, from a breakeven forecast by analysts.

What’s next?

BlackBerry has been counting on its flagship software and services business for long-term growth after its revenue from the smartphone segment disappeared.

The QNX operating system, which powers automobiles’ infotainment systems, is forecast to be the second-largest component of the firm’s software sales after its enterprise mobility management business.

Despite some positive announcements last month, including a partnership agreement with an auto supplier Delphi Automotive Plc for a software operating system for self-driving cars, BlackBerry still has a long way to go.

I think it’s too early to call BlackBerry stock a long-term buy, despite impressive earnings results. First, the QNX operating system is facing some significant competition from other tech giants, such as Citrix Systems, Inc., Microsoft Corp., and VMWare, Inc ., which bundle those products into broader business software offerings.

Second, the QNX market has just started to develop, and it’s not easy to draw a full picture of this business, especially at a time when indications are that it’s going to become crowded as much larger and stronger competitors emerge.

Should you buy BlackBerry stock?

BlackBerry stock has gained 22% last month at the time of writing, trading at $13.87 a share. These gains took its stock price close to the 52-week high of $15.82 it reached in June.

Going forward, I think, it’s going to be a tough ride up for BB stock, as almost all positive developments have been priced in. Price action in BlackBerry stock suggests that it’s still a speculative play for short-term investors.

For long-term investors, I think a wait-and-see approach is better until we have a clear sign showing the company is gaining a dominant position in its new line of business.


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 Haris Anwar 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.