The Motley Fool

Is BlackBerry (TSX:BB) Stock a Buy After Beating Expectations in Q2?

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On Thursday, September 24, BlackBerry (TSX:BB)(NYSE:BB) released its second-quarter results for the period ending August 31. Its sales of US$259 million were up 6.1% year over year. Analysts were expecting sales of US$237 million — a target that the Ontario-based company cleared with ease. Its growth came from licensing and other revenue, which totaled US$108 million and grew by 42.1% from the prior-year period. Its software and service revenue of US$151 million, however, was down 10.1% from last year, as BlackBerry blamed COVID-19, and the impact it had on the automotive market, leading to a decline in royalties for its BlackBerry QNX software, which dropped by US$21 million.

The company did see an improvement in its bottom line, as its net loss of US$23 million was lower than the US$44 million loss that BlackBerry incurred in Q2 last year. Overall, it wasn’t a bad quarter from the company, as it did well despite the challenges related to COVID-19 this year. BlackBerry’s cash flow for the past six months also showed improvement, as its cash from day-to-day operations netted out to $0 compared with a cash burn of US$47 million during the same period last year. Its cash on hand of US$837 million as of August 31 was more than double the US$377 million that BlackBerry reported at the start of the fiscal year at the end of February.

Are the results good enough for investors?

BlackBerry stock initially saw a strong boost on the release of the results on Thursday, but by the end of the day, it finished down 1%, despite the earnings beat.

It’s difficult to gauge BlackBerry’s success, because its quarterly revenue has been stuck within US$200 million and US$300 million for the past few years. The progress has been limited and sales growth of 6% doesn’t give investors much to be excited about. However, with COVID-19 still impacting the economy and businesses, there’s no easy answer for investors here as to how much better the stock should have done.

But with more people working from home due to the pandemic, investors should expect to see some positive tailwinds in the company’s top line. With the stock down more than 30% over the past year heading into earnings, the company may be running out of time, as investors could grow tired of waiting for BlackBerry to start generating strong growth numbers. It could be a sign that there is just too much competition out there, and that BlackBerry’s products simply aren’t good enough.

Bottom line

As a BlackBerry investor myself, I was hoping for much better from the company. Many tech companies have been posting strong results amid COVID-19, as their businesses have benefitted from more people working remotely. And that should have contributed to some better growth numbers for BlackBerry in Q2, especially as cybersecurity needs are likely on the rise with more people working outside the office. A 6% growth rate is not what I’d expect from the company at this stage, and although it beat earnings and profit estimates, it’s hard not to consider this yet another disappointment.

With no profitability, soft growth numbers, and a business that seems to be stuck going nowhere, it may be time for investors to consider other options, as there are much better stocks to invest in today.

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 David Jagielski owns shares of BlackBerry. The Motley Fool recommends BlackBerry and BlackBerry.

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