BlackBerry (TSX:BB): Buy the Dip?

BlackBerry Ltd (TSX:BB)(NYSE:BB) showed strong revenue growth in its latest reported quarter, but the tech firm is not doing as well as it seems.

| More on:
Businessmen teamwork brainstorming meeting.

Image source: Getty Images

Former smartphone giant BlackBerry (TSX:BB)(NYSE:BB) is now moving in an entirely new direction. The tech company’s core operations revolve around cybersecurity services, a promising and lucrative industry. However, BlackBerry recently released its second-quarter earnings report, and despite strong revenue growth, there are reasons to be wary of the company’s future. 

Decelerating growth 

To be clear, there are several facts and figures in BlackBerry’s financial results that seemed encouraging. The firm’s top line grew 22% year over year, and its software and services revenues — which is now BlackBerry’s largest segment — saw its revenues grow by 30% year over year. Further, more than 90% of the company’s revenues now come from recurring software services. When put in perspective, though, these results aren’t particularly impressive.

First, the tech firm’s software and services revenues actually declined sequentially. Although this was not a significant decline (about 2.5%), it is nevertheless noteworthy. Second, the year-over-year revenue increase of 22% was slightly below its 23% increase recorded in the first quarter. Again, that’s not a huge difference, but for a company that is supposed to be on an upward trajectory, it matters quite a bit. 

Perhaps most importantly, BlackBerry’s organic revenues actually declined slightly year over year. The company was able to record an apparently strong growth thanks to its Cylance acquisition. On that subject, it is also worth noting that Cylance’s revenue growth of 24% during this quarter was well below what the company had anticipated. In other words, things aren’t going the way BlackBerry expected them to. The firm’s guidance for the full year now predicts revenue growth in the 23-25% range compared to its previous expectations of 23-27% growth year over year. No wonder investors were unimpressed with BlackBerry’s results. The firm’s shares dropped by as much as 22% on the day its results were announced. 

Should you buy? 

On the one hand, there is still hope that BlackBerry’s new venture will prove to be fruitful in the future. After all, it is still very early in the company’s attempted turnaround. It wasn’t that long ago that BlackBerry was still known as a smartphone company, so investors should exercise patience. That being said, however, BlackBerry’s financial results have become less and less impressive.

Despite the firm making several major acquisitions, its core cybersecurity business as well as its Internet of Things segment seem to be struggling to take full flight. All of this spells trouble for the company. Sure, the fact that most of BlackBerry’s revenues come from recurring contracts is a strength, and the company will likely make more moves in the future to further improve its prospects. But all things considered, BlackBerry doesn’t seem particularly attractive at the moment. 

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 Prosper Junior Bakiny owns shares of BlackBerry. The Motley Fool owns shares of BlackBerry and BlackBerry. BlackBerry is a recommendation of Stock Advisor Canada.

More on Tech Stocks

stock analysis
Tech Stocks

Investing in AI: 1 Cheap Tech Stock Poised for Growth

Docebo is a little-known Canadian tech firm that's unlocking the power of next-generation AI technologies.

Read more »

Businessman holding AI cloud
Tech Stocks

5 Tech Stocks You Can Buy and Hold for the Next Decade

Don't make the mistake of thinking all tech stocks are alike. These five have a strong future both behind and…

Read more »

funds, money, nest egg
Tech Stocks

TFSA Investors: 2 TSX Stocks for a Legit Shot at $1 Million in 20 Years

Undervalued TSX tech stocks such as Neighbourly Pharmacy can help investors to turn a $100,000 investment into $1 million in…

Read more »

TIMER SAYING TIME FOR ACTION
Dividend Stocks

TFSA: 3 Value Stocks to Buy in April

The March dip is a synopsis of the mild recession banks anticipate as high interest rates trickles down. It is…

Read more »

Growing plant shoots on coins
Tech Stocks

Got $5,000? These Are 2 of the Best Growth Stocks to Buy Right Now

If you've got $5,000 to invest, buying growth stocks like Lightspeed Commerce and Microsoft is a smart decision.

Read more »

edit Colleagues chat over ketchup chips
Tech Stocks

2 Easy TSX Stocks for Beginners in April 2023

You don’t need to think twice about loading up on these two Canadian stocks in April.

Read more »

calculate and analyze stock
Tech Stocks

Growth Stocks: A Once-in-a-Decade Opportunity to Get Rich

Growth stocks are generally cheap now. So, this year is a good opportunity to shop for growth stocks, perhaps through…

Read more »

grow money, wealth build
Tech Stocks

$10,000 Invested in These Growth Stocks Could Make You a Fortune Over the Next 10 Years

Growth stocks such as Dollarama and Chewy are well poised to deliver outsized gains to long-term investors.

Read more »