The Motley Fool

Does BlackBerry (TSX:BB) Belong in Your Portfolio?

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BlackBerry (TSX:BB)(NYSE:BB) remains one of the most controversial investments of the past decade, attracting loyal fans and harsh critics alike. Best known for its line of small-keyboard phones, BlackBerry has transitioned over the past few years into a software-first company that holds plenty of long-term potential in the fields of cybersecurity, IoT, and autonomous driving.

By way of example, BlackBerry’s QNX operating system is already in use in well over 120 million automobiles, powering infotainment systems of dozens of well-known automobile manufacturers. As the market continues to move towards the goal of an autonomous vehicle solution, BlackBerry’s already embedded position in that market could prove to be a game changer.

But how far out is that potential, and is BlackBerry still a good investment right now? That’s the question on investor minds following the recent quarterly announcement by the company, which led to the stock dropping a whopping 30%.

Q2 results: Disappointing or expected?

BlackBerry announced results for the second quarter of fiscal 2020 just over two weeks ago. In that earnings announcement, BlackBerry reported GAAP revenue of US$244 million, representing a solid 16% year-over-year gain. The bulk of that revenue, US$239 million, was attributed to the Software and Services segment, which saw a 24% year-over-year uptick.

Turning to earnings, BlackBerry reported a GAAP loss of US$43 million, or US$0.08 per basic share, translating into a miss on earnings by US$0.05 per share. Worth noting, however, is that on a non-GAAP basis, BlackBerry broke even and managed to generate free cash flow of US$15 million.

Finally, BlackBerry noted staffing changes on the sales front, which should eventually address some of the weakness we saw in the most recent quarter.

What does this mean for long-term investors?

The long-taken views by critics that BlackBerry was dying and offered no significant means of growth remain grossly exaggerated. BlackBerry is no longer in the dire position that it was several years ago. Both the IoT and QNX automotive segments are showing significant long-term promise, with the potential to drive revenue growth for a decade or more, but that growth could be a year or more out.

Similarly, BlackBerry’s Cylance acquisition promises to become a major revenue driver but is likely to face stiff competition from other big-name companies on the market, unless BlackBerry continues to make inroads through marketing efforts to promote its product suite.

But is BlackBerry a good buy?

That all depends on what long term means to your portfolio. BlackBerry is currently trading near the 52-week low, and despite the disappointing earnings announcement, the company is still maintaining strong guidance for the remainder of the year. Specifically, for fiscal 2020, BlackBerry is calling for non-GAAP revenue growth to fall in between 23% and 25%.

For long-term investors that can tolerate some short-term risk, BlackBerry could prove to be an excellent long-term holding for a decade or more. That appeal becomes even more attractive when factoring in the recent drop in the share 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 Demetris Afxentiou has no position in any of the stocks mentioned. The Motley Fool owns shares of BlackBerry and BlackBerry. BlackBerry is a recommendation of Stock Advisor Canada.

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