Investors: What to Expect From BlackBerry’s (TSX:BB) Upcoming Earnings

Should you buy BlackBerry Ltd (TSX:BB)(NYSE:BB) stock before its fiscal second-quarter of 2020 earnings?

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Canada-based technology company BlackBerry (TSX:BB)(NYSE:BB) is expected to announce its fiscal second-quarter of 2020 earnings (ended in August) on September 24, 2019. Analysts expect BlackBerry to post revenue of $265.7 million in the August quarter, which represents growth of 24.2% year over year.

BlackBerry reported earnings of $214 million in the prior-year period. Analysts have a high revenue estimate of $271.09 million and low revenue estimate of $255.4 million for BlackBerry in the second quarter.

They have also forecast BlackBerry’s earnings per share (EPS) to fall from $0.04 in the second quarter of 2019 to -$0.01 in the second quarter of 2020. Analysts have a low EPS estimate of -$0.02 and a high estimate of $0.02 in the second quarter.

Has BlackBerry beaten earnings estimates in recent quarters?

BlackBerry has managed to beat analyst earnings estimates in each of the last four quarters. The company reported EPS of $0.01 in the May quarter, which was above estimates of $0.00. It reported EPS of $0.11 in the February quarter, which was 83.3% above estimates of $0.06.

BlackBerry beat earnings estimates of $0.02 by 150%, as it reported EPS of $0.05 in the third quarter of 2019. The company managed to beat estimates of $0.01 by 300% in the second quarter with a reported EPS of $0.04.

Despite the earnings beat, BlackBerry shares have underperformed broader indices in the last 12 months. The stock has returned -26.5% in the last year and 5.5% year to date.

Cylance acquisition expected to drive BlackBerry sales

In the first quarter of 2020, BlackBerry reported sales of $247 million. Cylance accounted for 13% of sales in the May quarter and is estimated to be a key driver of revenue in 2020. BlackBerry acquired Cylance for $1.4 billion, plus the latter’s unvested employee incentives.  The acquisition was completed in early 2019. Cylance is a major player in the artificial intelligence cybersecurity vertical.

BlackBerry CEO John Chen stated, “Today, BlackBerry took a giant step forward toward our goal of being the world’s largest and most trusted AI-cybersecurity company. Securing endpoints and the data that flows between them is absolutely critical in today’s hyperconnected world. By adding Cylance’s technology to our arsenal of cybersecurity solutions we will help enterprises intelligently connect, protect and build secure endpoints that users can trust.”

BlackBerry’s billion-dollar acquisition will help expand its product portfolio in the end-to-end communications segment. Cylance’s embedded artificial intelligence technology will accelerate the development of BlackBerry Spark.

Spark is BlackBerry’s secure communications platform for the Internet of Things (IoT) vertical.

IoT segment accounts for the majority for BlackBerry sales

In the first quarter, BlackBerry’s IoT segment generated $136 million in sales — growth of 8% year over year and accounted for 55% of revenue. Licensing sales rose 7% to $72 million and accounted for 29% of total revenue in the first quarter.

For fiscal 2020, BlackBerry has estimated revenue growth between 23% and 27%, driven by a double-digit percentage increase in billings. The IoT business is estimated to grow between 12% and 16%, while Cylance is estimated to grow sales between 25% and 30% in 2020.

The integration of Cylance is expected to drive the company’s profit margins lower. Analysts expect BlackBerry’s earnings to fall by 70.8% to $0.07 in 2020. It is then estimated to rise by 171.4% in 2020. BlackBerry expects to maintain non-GAAP profitability in 2020.

BlackBerry is expected to benefit from the growth in demand for cybersecurity solutions. It has managed to pivot from the smartphone manufacturing business and needs to stabilize revenue from its primary business segments to get investors interested.

The analysts tracking BlackBerry have a 12-month average target price of $10.34 for the firm. This indicates an upside potential of 37% from the current price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

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