On March 31, BlackBerry (TSX: BB)(NYSE: BB) reported a mixed fourth-quarter performance. Its adjusted EPS came in at US$0.01, beating analysts’ expectation of a loss per share of US$0.05. However, its top line of US$185 million fell short of analysts’ expectations of US$187 million.
Further, the company’s annual recurring revenue declined by 11% due to a higher churn rate and the closing of its BlackBerry mobile device operations, which stopped the revenue contributions from its enhancing SIM-based licensing. The company has blamed the smaller and more price-sensitive customers shifting towards lower-priced products of its peers for higher churn. The decline in ARR could impact its progress and future growth.
So, the lower-than-expected sales and uncertain outlook led to a correction in the company’s stock price. It has lost 8.8% of its stock value since reporting its fourth-quarter earnings and trades 28.5% lower this year. So, should you buy BlackBerry after a steep correction? First, let’s look at its fourth-quarter performance and growth prospects.
BlackBerry’s fourth-quarter performance
BlackBerry’s revenue grew by just US$1 million compared to the previous year’s quarter. Its revenue from the IoT business grew by 36.8%, which was offset by the decline in revenue from its licensing and others segment. Meanwhile, its revenue from the cybersecurity segment remained unchanged at US$122 million.
The company’s overall gross margin fell 5% to 68% due to a decline in all three segments. Meanwhile, the company had record design wins in the fourth quarter, including 17 in auto and 28 in the general embedded market. The company’s adjusted EPS came in at US$0.01 compared to $0.02 in the previous year’s quarter. Its adjusted EBITDA came in at US$20 million.
For the quarter, BlackBerry generated US$10 million in cash from its operating activities. At the end of the quarter, the company had US$770 million in cash and cash equivalents. So, its financial position looks healthy. Let’s look at its growth prospects.
BlackBerry’s growth prospects
With digitization and rising remote working, cyber-attacks are rising, thus driving the spending on cyber solutions. So, the addressable market for BlackBerry is growing. The company has increased its product offerings, with the launch of 48 new products in 2021. The company is also expanding its headcount by adding cyber go-to-market professionals and sales representatives to drive its sales. Although the company’s churn rate is rising, its advanced product offerings continue to resonate with large corporations and governments.
Meanwhile, the Ukraine conflict has further complicated the business environment for the automotive sector, which is already struggling due to chip shortages. However, the demand for safety-critical foundation software is rising, benefiting BlackBerry. After a record design wins last quarter, the company’s pipeline for potential new design wins looks healthy. Meanwhile, the company’s IVY platform could be a significant growth driver in the coming years, with the company receiving several requests to start proof-of-concept. So, I believe the company’s growth prospects look healthy.
Bottom line
Despite the near-term volatility, I am bullish on BlackBerry, given the expanding addressable market and its growth initiatives. So, I believe long-term investors should utilize the correction to accumulate the stock to earn substantial returns in the long run. Meanwhile, analysts favour a “hold” rating for the stock. Their consensus price target represents an upside potential of 4.9%.
