BlackBerry Q4 2023 Earnings Preview: 5 Things To Watch (NYSE:BB)

Ahead of BlackBerry’s (NYSE:BB) third-quarter results posted in Dec. 2023, investors honed in on three things. Shareholders scrutinized the struggling firm’s earnings, assessed its new leadership under a new Chief Executive Officer, and considered the cancellation of its IoT spinoff.

The stock market voted against BB stock after last quarter’s results, if readers use the stock performance as a primary measure. Shares lost nearly 37%, compared to the S&P 500 (SP500) gaining 11.46% in that time.

When BlackBerry reports results on April 3, 2024, what should readers consider? How might markets react after the report?

Readers have five things to watch.

1/ BlackBerry’s Earnings Forecast for Q4

BlackBerry posted a one-cent earnings per share, beating the -$0.017 EPS consensus estimates issued by analysts. As shown below, the firm exceeded analyst estimates for four quarters in a row. However, it reported a loss half the time. The firm achieved a modest FQ1 2024 EPS of $0.06 by reporting revenue growth of 122.0% Y/Y to $373 million. On closer examination, the firm included a one-time revenue of $218 million related to a patent sale. It posted revenue of just $45 million from IoT and $93 million from cybersecurity.

In the third quarter, BlackBerry posted revenue rising by 3.6% Y/Y to $175 million. IoT revenue of $55 million is 8% higher than year-ago levels. The company achieved Cybersecurity revenue of $114 million similarly up by 8% Y/Y.

Unfortunately, the company’s cyber unit is underperforming its peers. CrowdStrike (CRWD) posted quarterly revenue of $845.3 million, up by 32.6% Y/Y. Its annual recurring revenue grew by 34% Y/Y and topped $3.44 billion. SentinelOne reported Q4 revenue growing by 38.2% Y/Y to $174.2 million. Its ARR topped $724.4 million, up by 39% Y/Y. Customers with an ARR of $100,000 or more grew by 30% to 1,133.

At an Annual Needham Growth Conference, BlackBerry said that its Cybersecurity ARR is stabilizing. CEO John Giamatteo added that the firm is “hopeful that we can get that even and pivot to growth as we go into the next fiscal year.” The CEO did not give the audience any quantitative data to back that hopeful outlook.

2/ Mobility and QNX

At Baird’s 2024 Vehicle Technology and Mobility Conference, John Wall, BlackBerry’s Senior Vice President and Head of QNX, discussed the firm’s role in the automotive software market. He cited delays in software integration as one of the industry’s challenges. Looking ahead, potential partnerships stem from companies considering QNX to build their software platforms.

Wall cited QNX’s announcement with Stellantis (STLA) during the Computer Electronics Show. The auto giant is developing a digital cockpit that is central to its infotainment system and cabin environment. By working in the cloud, Stellantis achieves a 100-fold efficiency in development.

The executive highlighted the new QNX 8.0 operating system. As vehicles introduce more powerful SoCs (System on a Chip) with as many as 16 cores, QNX would rival the Linux OS in performance. QNX scales effectively as the SoC core count increases.

IVY is a joint development between BlackBerry and Amazon’s (AMZN) AWS that creates a middleware layer within the vehicle. Executive Wall said that this “helps normalize vehicle sensors and vehicle signals into something that can be consumed by an application or a cloud application.” This would result in the Edge processing vehicle data instead of sending data to the cloud. By normalizing data, any car brand could use IVY’s APIs.

Although BlackBerry will not discuss the technical details of QNX, it needs to issue revenue and earnings guidance from QNX-related software sales. Without that, shareholders have one less reason to continue holding their shares.

3/ Notes Offering in January

On Jan. 23, BlackBerry announced an intention to sell $160 million worth of principal amount of convertible senior notes due in 2029 in a private offering. Per Seeking Alpha’s news post, the firm intended to use the net proceeds to pay back a $150 million amount of convertible senior notes that was due on Feb. 15, 2024.

It upsized the offering to $175 million on Jan. 24. The notes pay 3.00%. It has an approximately 32.50% conversion premium (based on the $2.93 closing price on Jan. 24). The initial conversion price of $3.88 per share potentially sets a ceiling on the stock price until the notes mature on Feb. 15, 2029. BB stock closed at $2.76 at the time of this article’s writing.

4/ Quant Rating Warning on BB Stock

Seeking Alpha issued a warning on Dec. 28, 2023, around two weeks after my last article but“ before the Q3 report posted on Dec. 20. The Quant rating system cited the stock is overpriced and has decelerating momentum. Furthermore, “Stocks rated Sell or worse by our Quant rating system have massively underperformed the S&P 500.”

Among the firms in the Information Technology sector, BlackBerry’s weak forward EBIT (earnings before interest and taxes) results in a relative valuation grade of D-.

Needless to say, the downtrend in BB shares in the last three months resulted in a “D” on momentum.

5/ Alternative Investments

Readers should consider alternatives to holding BlackBerry stock ahead of its earnings report. On a YTD basis, the stock lost 22%, compared to a 15% decline in cybersecurity software firm SentinelOne.

Both Stellantis and CrowdStrike are up by over 20%. CRWD and STLA stock are especially attractive alternative investment ideas. They both have strong industry rankings of 9 out of 46 and 11 out of 31, respectively.

Your Takeaway

Shareholders are not likely to react to BlackBerry’s revenue and earnings results. Instead, they will review the company’s outlook for the rest of the year. CEO John Giamatteo needs to articulate a growth plan for the company’s cybersecurity and QNX automotive units.