It’s the same, old story for BlackBerry (TSX: BB)(NYSE: BB). The cybersecurity and IoT company reported its first-quarter earnings for the fiscal year 2023 on June 23. While the revenues beat analysts’ estimates for the quarter, they continued to fall compared to the same period last year. So, it was yet another quarter of declining growth and hope for its bright prospects in the super long term.
BlackBerry reports a loss in Q1 FY2023
BlackBerry reported total revenues of US$168 million for the quarter that ended on May 31, 2022. In the same quarter last year, it reported revenues of US$174 million. This was the seventh consecutive quarter where BlackBerry reported declining revenue growth year over year.
The weakness was well reflected in its stock market performance. Apart from the broader market weakness, BlackBerry’s weaker financial performance has also weighed on its stock. As a result, BB stock has dropped more than 55% since last year, underperforming TSX stocks by a wide margin. Notably, poor quarterly performance might keep pushing BB stock further lower.
BlackBerry’s cybersecurity segment reported revenues of US$113 million, which was a 6% growth year over year. IoT revenues came in at US$51 million — a 19% increase compared to last year. The company reported a one-time litigation settlement cost of US$165 million during the quarter.
Weak financial performance amid steep challenges
Rising competition could dent BlackBerry’s market share, which will, again, mar its top-line growth. Apart from the revenue drop, the company also reported a decline in its margins lately.
For Q1 2023, its gross margins stood at 62% — a significant drop from 65.5% in the same quarter last year. This has been a concern for long. Even if BlackBerry operates in high-growth verticals, its declining revenue growth and margins highlight the pain and a thorny path for it going forward.
BlackBerry operates in cybersecurity and IoT, both fast-growing and large addressable markets. The prior has gained steam with remote working at the fore since the pandemic. In addition, BlackBerry QNX — a software for cars — is already embedded in more than 195 million cars globally. So, BlackBerry offers handsome growth prospects in the long term. However, it is grappling with steep challenges at the moment. So, there is a huge opportunity cost involved for BB investors.
The management gave an optimistic outlook last month with US$1.2 billion in revenues in 2027. Note that BB reported $1.3 billion in revenues in 2017.
Bottom line
Apart from the fundamental risks, the macro pressures could continue to weigh on BB stock. This year has been a terrible one for growth stocks with unprofitable, declining growth in financials. BB stock belongs to the same group. With faster, bigger interest rate hikes coming, it will likely trade even weaker, at least in the short to medium term. For BlackBerry to become an attractive investment, I will wait for its revenues to rise steadily.
