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Why BlackBerry (TSX:BB) Stock Fell Over 30% Last Month

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Shares of Canada’s tech company BlackBerry (TSX:BB)(NYSE:BB) have been volatile this year. BlackBerry stock rose from $8.44 a share at the start of 2021 to touch a multi-year high of $31.5 at the end of January. It’s currently trading at $13.22 at the time of this report.

The stock began its upward spiral in December 2020 after it disclosed a partnership with Amazon Web Services in order to develop a cloud-based automotive platform called IVY. This platform will be based on BlackBerry’s embedded operating system known as QNX.

The stock again gained momentum in January after it settled a patent infringement lawsuit against social media giant Facebook and sold a few old patents to China’s telecom heavyweight Huawei.

Further, BlackBerry also announced an automotive partnership deal with Baidu, which will help integrate QNX with Baidu maps in electric vehicles manufactured by GAC Group.

BlackBerry stock was also impacted by the Reddit-fueled short squeezes, where retail investors tried to manipulate the prices of “unloved” companies, including GameStop and Nokia.

BlackBerry downgraded by Canaccord Genuity

In February, BlackBerry gave up these gains to trade at a lower price. Investment bank Canaccord Genuity downgraded the stock to “sell.” Further, similar to other Reddit-fueled stocks, BlackBerry also lost significant momentum and grossly underperformed the broader market last month.

In fiscal 2020, BlackBerry’s sales were up 15% year over year, primarily driven by its acquisition of Cylance and rising patent licensing sales. Comparatively, in the first nine months of fiscal 2021, its sales were down 10% to $683 million. Sales from its QNX vertical fell drastically as the COVID-19 pandemic caused massive disruptions to the auto industry.

The company’s net loss also widened to $789 million in the last three quarters compared with losses of $111 million in the prior-year period. The decline in profit margins was attributed to a non-cash goodwill impairment charge.

Comparatively, its adjusted EBITDA rose 63% year over year to $132 million, driven by an increase in licensing revenue — a business that has high profit margins. In fiscal 2021, Wall Street expects company sales to fall by 14% to $943 million, while earnings are forecast to grow by 38.5% to $0.18.

Comparatively, revenue is expected to grow by 9.2% due to a recovery in the auto space while earnings might fall close to 17% in fiscal 2022. It suggests BlackBerry stock is trading at a forward price-to-2022-sales multiple of six and a price-to-earnings multiple of 72, which is not cheap for a company grappling with uneven growth.

The automobile vertical is key over the long term

According to industry experts, the autonomous vehicle space provides a stellar opportunity for BlackBerry to drive top-line growth over the long term. The QNX product is now installed in 175 million vehicles and helps to increase vehicle safety and security.

The autonomous vehicle space is attracting massive investments. The Constellation Network, which is a decentralized network that provides communication between big data infrastructure and blockchain, claimed it has made significant progress in developing a common standard of communication for autonomous cars.

The Constellation Network has partnered with industry giants including Ford and General Motors in this space and as part of MOBI (Mobility Open Blockchain Initiative). It is also the only blockchain project with a U.S. military contract.

According to Benjamin Diggles, CRO of Constellation Network, “Constellation fixes the mobility data problem at its root. Our network is designed to offer a neutral standard for hardware-to-hardware communication, while giving users control over their own data.”

Diggles added, “In the context of self-driving cars, DLT that is infinitely scalable is simply the only answer to the delicate balance of guaranteeing user privacy while collecting potentially life-saving data.”

The Foolish takeaway

BlackBerry needs to tick multiple boxes before it can regain investor confidence. While its part of high-growth segments, the company needs to translate its potential into consistent revenue growth and sustainable profit margins.

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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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. David Gardner owns shares of Amazon, Baidu, Facebook, and GameStop. Tom Gardner owns shares of Baidu and Facebook. The Motley Fool owns shares of and recommends Amazon, Baidu, and Facebook. The Motley Fool recommends BlackBerry and BlackBerry and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

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