Since January 2017, the stock has risen 68%, as BlackBerry has transformed from a company posting drastically declining revenues and a seemingly insurmountable cash burn into a company that is posting revenue growth again and even free cash flow!
Let’s review the latest quarter, the fourth quarter of fiscal 2018, to see where the company is at and where it may be going.
Revenue grew 13% this quarter, with software and services revenue accounting for 91% of total revenue compared to 65% of total revenue last year.
This is important, as it reflects on the success of the company’s strategy to focus on higher-margin recurring software/services revenue — a strategy that many had doubts about in the early stages.
Gross margins were 79% in the quarter, which is a record high for the company and compares to gross margins of 65% last year. Operating income was $19 million for an operating margin of 8% compared to 4% last year.
So, consistent with CEO John Chen’s plan, the licensing and enterprise software and solutions segments are accounting for an increasingly bigger part of the company’s revenue, with licensing revenue accounting for 27% of revenue in the quarter, and enterprise software and services revenue accounting for 52% of revenue — progress on all fronts.
Increasingly focused on technology for the self-driving vehicle market, BlackBerry continues to make progress there, and while the market is still emerging, and competition is fierce, with many players pursuing this market, BlackBerry is showing strong early signs.
The company has engaged in different partnerships with automakers, such as Ford, which has expanded its use of Blackberry’s QNX software for connected and autonomous cars.
The balance sheet remains strong, with cash plus short-term investments of more than $2.4 billion, an increasingly larger percentage of revenues are recurring, and the company’s cash flow generation ($47 million free cash flow generation in fiscal 2018) and minimal debt sets it up to continue to invest in the business and grow organically and/or through acquisitions.
It’s a different company — a stronger company. And while the success has been undeniable, the stock’s valuation seems to be reflecting this success, although an acquisition would change the playing field.
Year to date, the stock has risen 5.8%, as the market seems to have priced in a lot of good news, and investors await further progress in the company’s financial results and business strategy.
A smart acquisition would be the catalyst to drive the shares higher in the short term.
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Fool contributor Karen Thomas has no position in any of the stocks mentioned. David Gardner owns shares of Ford. The Motley Fool owns shares of BlackBerry. BlackBerry is a recommendation of Stock Advisor Canada.