Why BlackBerry Stock Crashed Despite a Q1 Earnings Beat

Here’s why BlackBerry’s (TSX:BB)(NYSE:BB) stock crashed, despite its Q1 earnings beat. Let’s explore why you should avoid buying its stock right now.

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BlackBerry (TSX:BB)(NYSE:BB) announced its first quarter of fiscal 2021 earnings results on Wednesday. The company reported adjusted earnings of US$0.02 per share — double as compared to its adjusted EPS of US$0.01 in May 2019 quarter. Wall Street analysts were expecting the company to report adjusted net loss of US$0.02. However, the event triggered a selling spree in its stock, as it fell by 3.2% for the day.

Let’s explore the key possible reasons for investors’ negative reaction and some key points from BlackBerry’s Q1 2021 earnings report.

Sliding revenue and EBITDA

Once considered a dominating leader in the smartphone market, BlackBerry lost its position nearly a decade ago and now makes most of its revenue from enterprise and other software solutions.

In the May 2020 quarter, BlackBerry’s revenue fell by 26.5% sequentially and 19.9% on a YoY (year-over-year) basis to US$214 million. But it was slightly higher from Wall Street’s expectation of US$213 million.

While the company’s revenue from its other segments remained stable, its QNX segment revenue fell because of the COVID-19-related global auto production shutdowns. Note that QNX is BlackBerry’s OS platform used primarily in the cars and other tech devices.

It also reported a lower gross profit margin of 71% in Q1 of fiscal 2021 as compared to 75% a year ago.

Likewise, the company’s adjusted EBITDA of US$20 million was much better as compared to estimates of US$7.8 million, but it fell by 13% YoY. A YoY drop in BlackBerry’s revenue and EBITDA — along with gross margin contraction — could be some of the reasons why its stock fell after the event.

Uncertain outlook

Just like many other businesses — BlackBerry also avoided giving any guidance for its fiscal 2021 due to the uncertainties caused by the ongoing pandemic. However, John Chen — its CEO — expects the company to perform well in the second quarter. His views are based on the expectations of sequential growth in BlackBerry’s software, services group, and licensing group.

However, the company expects its fiscal 2021 licensing revenue to be around US$250 million — down about 23.8% from US$328 million. Expectations of a significant decline in its licensing revenue in the current fiscal year and uncertainty about BlackBerry’s outlook could continue to hurt investors’ sentiments in the coming months.

I would avoid buying BlackBerry

BlackBerry stock started 2020 on a dismal note, as it ended the March quarter with a massive decline of 30.9%. Meanwhile, the shares of BlackBerry’s peers, such as Absolute Software, Lightspeed, and Open Text, also fell by 0.9%, 47.2%, and 14%, respectively.

Renewed recession fears caused by the COVID-19 outbreak triggered a broader market massive sell-off.

In the current quarter, BlackBerry stock has outperformed the broader market and some of its peers. It has inched up by about 19.8% as compared to a 14.3% rise in the S&P/TSX Composite Index.

Apart from worries due to the ongoing global pandemic, weakening auto sales also could hurt BlackBerry’s revenue from its QNX segment later this year. Most of the factors — which we discussed in this article after its Q1 results — would make me want to avoid BlackBerry stock right now.

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 Jitendra Parashar has no position in any of the stocks mentioned. The Motley Fool owns shares of Lightspeed POS Inc. The Motley Fool recommends BlackBerry, BlackBerry, Open Text, and OPEN TEXT CORP.

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