BlackBerry Ltd (ticker: BBRY) stock has been on an absolute tear as of late, soaring higher by nearly 50 percent in the last three months on the strength of a solid fiscal fourth-quarter earnings report in March.
But while it appears the skies are really starting to open up for the once-great QWERTY smartphone king, the question now has become whether BBRY has run too far, too fast and whether its next earnings announcement will be enough to sustain its bullish momentum.
Here’s what to expect from BlackBerry in its fiscal first-quarter report on Friday, as well as a look at the rest of this week’s earnings slate.
The headline numbers. Revenues will continue to be a wreck this quarter as BlackBerry faces stark year-over-year contrasts from when it still was producing smartphones itself. While BBRY’s switch to licensing models is much better from a profitability perspective, the sales are simply much lower, which is why Wall Street is projecting a 37.6 percent drop to $264.5 million for the quarter.
But you can see where the sun will poke back out again. BlackBerry’s final top-line tally is expected to be $987.41 million, off just more than 28 percent from last year. Next year’s estimates are only slightly off from there, at $980.6 million — in other words, any variance will be wholly based on BlackBerry’s performance as a true software and service company.
[See: The 10 Most Valuable Auto Companies in the World.]
Earnings are expected to be breakeven, versus a 2-cent-per-share profit a year ago. For the full year, BlackBerry should post a profit of 2 cents per share, but next year, analysts expect that to quadruple to 8 cents.
BlackBerry, the automotive play. The biggest — or at least the loudest — bull case for the past few months has been BlackBerry’s QNX operating system, which is being used to power connected and autonomous car technology for a number of partners, from Ford Motor Co. ( F) and General Motors Co. ( GM) to Maserati and Porsche.
QNX’s potential in the driverless space is one of the bullish arguments cited in a rare bull note by Citron Research posted on June 1. Citron’s query, “Could BlackBerry be the next Nvidia,” not only sent BBRY stock to highs last seen in 2014, but was also fitting given a quote from Kevin Flory, vice president of automotive software for Nvidia Corp. ( NVDA), who said Nvidia’s DriveWorks software, combined with BlackBerry’s operating system, “enables automakers to build the highest performing, ASIL-certified autonomous driving solutions.”
But while self-driving capability is clearly the biggest gasp-inducing technology, don’t ignore the tangible — QNX provides solutions for everything from infotainment to security across an install base of 60 million cars.
QNX is one of the top areas to watch in this and future BlackBerry reports, but something that won’t show up in the company’s first-quarter results is potentially worrisome. Toyota Motor Corp. ( TM) dropped QNX in favor of open-sourced Automotive Grade Linux, which it will use starting in 2018.
Toyota makes up a slim amount of QNX business, so it’s not the direct loss of revenues that’s problematic — it’s whether Toyota ends up being the Camry in the coal mine. The flip side? Ford keeps doubling down on BlackBerry, even hiring 400 of its engineers to help develop connected vehicles. That was before Mark Fields was replaced as CEO by mobility-minded Jim Hackett, so that relationship could flourish further under new Ford leadership.
Was BlackBerry’s rise too early? While QNX is the main event, investors should begin to watch sales of the BlackBerry KeyOne by TCL (went on sale May 31), and bulls also have been excited about internet of things solutions such as BlackBerry Radar, which provides data for trucking fleets and could see significant adoption in the coming years. Another big driver over the past few months was the $815 million arbitration victory against Qualcomm ( QCOM) that eventually ballooned to $940 million.
[See: 10 Ways to Invest in Driverless Cars.]
The only problem? Very little of these additional drivers can do much for this quarter’s results. Most of BBRY’s run this year has come on hope — hope that Radar will bloom, hope that KeyOne sales will drive licensing profits.
But analysts are worried that BBRY stock has gotten a little ahead of itself.
Imperial Capital’s Michael Kim, for instance, maintained his “in-line” rating last week while warning that despite BlackBerry’s potential, shares are at best fairly valued, and that investors should wait for actual increased adoption rather than assuming it. Raymond James, the financial services company, downgraded BBRY to “market perform” in late May, providing a more conservative outlook for QNX.
So could BlackBerry be due for a little disappointment as reality catches up with hype? Potentially. Just note that both cautious analysts also acknowledged BlackBerry’s growth prospects.
Think “breather,” not “breakdown.”
More Earnings in Focus
Oracle Corp. (ORCL). Oracle walks into Wednesday evening’s earnings report with roughly double the returns of the broader market, but most of that was collected in the first couple months of the year. Since about mid-month, shares have been trading mostly sideways, and analysts don’t seem optimistic about Oracle’s fourth-quarter report changing that. In its third-quarter report, ORCL forecast final-quarter profits of 78 to 82 cents, but Wall Street’s pros’ consensus mark sits at the bottom of that guidance. Revenues are expected to shrink 1.3 percent to $10.45 billion. Oracle sprang to life in the third quarter thanks to progress in the cloud — but Societe Generale’s Richard Nguyen pulled the brake on the optimism in May, downgrading shares from “buy” to “hold” while dropping his price target by a buck to $50 per share.
Bed Bath & Beyond (BBBY). More retail, more pain? Bed Bath & Beyond reports Thursday after the bell, and will try to turn around a 13 percent year-to-date slide that basically mirrors the rest of the retail industry’s woes. BBBY does look better than many of its peers in that it’s actually expected to grow the top line, by about 2 percent for its fiscal first quarter. However, profits are forecast to plunge 17.5 percent to 66 cents per share. Anyone trying to take respite from Loop Capital’s Anthony Chukumba, who upgraded BBBY shares from “sell” to “hold” back in May, doesn’t have much to cling to. The improved outlook came only thanks to a relative discount to Bed Bath’s own historical valuation.
This Week’s Earnings Calendar
Tuesday. Adobe Systems ( ADBE), FedEx Corp. ( FDX), La-Z-Boy ( LZB), Lennar Corp. ( LEN)
Wednesday. CarMax ( KMX), Winnebago Industries ( WGO)
Thursday. Accenture PLC ( ACN), Barnes & Noble ( BKS), Carnival Corp. ( CCL), Hain Celestial Group ( HAIN), Sonic Corp. ( SONC)
[See: The New Sector Funds: 10 Thematic ETFs.]
Friday. Finish Line ( FINL)
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BlackBerry Ltd (BBRY) Stock Could Hit an Earnings Wall originally appeared on usnews.com
