BlackBerry: Not Even A Meme Stock Rally Will Save Investors

seekingalpha05-14

BlackBerry stock, at the time of writing this article, is up over 15% in today's trading, aided by the resurgence of meme stocks.With BB no longer being identified as one of the most shorted stocks, I...

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href=https://seekingalpha.com/article/4693094-blackberry-not-even-meme-stock-rally-will-save-investors><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>BlackBerry stock, at the time of writing this article, is up over 15% in today's trading, aided by the resurgence of meme stocks.With BB no longer being identified as one of the most shorted stocks, I...</p>\n\n<a href=\"https://seekingalpha.com/article/4693094-blackberry-not-even-meme-stock-rally-will-save-investors\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1914381329.SGD","symbol_name":"Allianz Best Styles Global Equity Cl ET Acc 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Sundry Photography BlackBerry Overview The meme stock mania is making a comeback. So is BlackBerry Limited (NYSE:BB), not so surprisingly. BB stock gained close to 75% yesterday, with investors primarily focusing on GameStop Corp. (GME) after Keith Gill, who goes by \"Roaring Kitty\" on X, posted the below image on the social media platform after a hiatus of 3 years.   X In pre-market trading, BlackBerry stock is up more than 20% as I write this. Needless to say, this reminds me of the original meme stock craze, during which BB stock skyrocketed from around $8 to more than $25. I have been a close follower of BlackBerry for years. In my most recent article last December, after digesting Q3 earnings, I claimed investors should avoid the company as the worst is yet to come. BB stock, through yesterday's close, had lost 14% since then, compared to the 10% increase in the S&P 500 Index (SP500) during the same period. After revisiting the company amid the resurgence of meme stocks, I still believe BlackBerry is uninvestable. Long-term-oriented investors should ideally ignore the noise, focus on fundamentals, and see BlackBerry for what it truly is; a money-losing business with no imminent recovery. This is Not 2021, That Is Good And Bad When BB shot higher in January 2021 alongside other meme stocks, BlackBerry was one of the most shorted stocks at the time. According to Fintel, the short interest on BlackBerry is at a more modest 8% today. Compare this with the short interest of 74%, 46%, and 45% for GameStop, Novavax (NVAX), and AMC Entertainment (AMC), respectively. BlackBerry is a company with a lot of retail investor interest, so I am not surprised with how BlackBerry stock has surged higher amid the growing momentum behind meme stocks. That said, I believe many other stocks would benefit greatly from a major short squeeze if that were to happen. This may not be what traders wanted to hear, but on the positive side, BlackBerry is on better financial footing - at least in terms of a few financial performance metrics - compared to 2021. First, the cybersecurity business is finally showing some resilience and stability, helping BlackBerry reap the rewards of IoT growth. In the fourth quarter of Fiscal 2024, cybersecurity annual recurring revenue grew 3% compared to Q3 to $280 million. This could be an early indication that recent strategies are beginning to deliver desired results. No guarantees yet, though, but I feel obliged to acknowledge this positive development given how skeptical I have been of the prospects for the cybersecurity segment. Cybersecurity revenue grew 5% YoY in Q4, primarily driven by the healthy performance of Cylance and BlackBerry UEM. This is encouraging, given that the management has been focused on improving these two products. Better renewal rates in both these products suggest recent product investments are being rewarded by clients. Second, the IoT business continues to make strides, as expected, aided by the strength of the QNX business. In Q4, QNX royalty backlog reached a new high of $815 million, representing YoY growth of around 27%. IoT revenue increased 25% YoY, with the automotive business driving revenue higher. Third, the balance sheet health has trended in the right direction recently, with the company reducing its total debt level by 45% since last November. After replacing near-term debt with longer-term debt - albeit at higher interest rates - BlackBerry now has more wiggle room. This is a net positive given that the company can now focus on the business. Sustainability Of Growth Is Questionable Despite the improvements discussed in the previous segment, several factors have dampened my expectations for long-term growth. First, the cybersecurity segment is facing intense competition and BlackBerry is crippled for freedom to invest aggressively compared to its rivals. Cost-cutting is not necessarily discouraging, but I believe the company has been forced to slash R&D spending at this crucial juncture because of its financial struggles, which may lead to an erosion of its market share. Data by YCharts BlackBerry's cybersecurity competitors include companies with deep pockets such as Microsoft Corporation (MSFT), which puts the company in a disadvantageous position to grow market share. Although the cybersecurity segment is finally showing some stabilization, this alone is not sufficient to justify the company's current valuation compared to expected cash flows next year. Lack of R&D investments may lead to BlackBerry's cybersecurity products going out of sync with current market requirements. Today, because of the complex threat landscape, cybersecurity firms are aggressively investing to embrace AI, offer cloud-based solutions, and develop integrated solutions. BlackBerry, not being in a position to hire the best talent in these niches, may end up losing its cybersecurity business to competitors eventually. Second, Big Tech companies such as Amazon.com, Inc. (AMZN) and Alphabet Inc. (GOOG) are entering the automotive market, threatening BlackBerry's established presence. Although these Big Tech companies will not kill BlackBerry overnight, I believe the company will take a hit if it proves too difficult for the company to differentiate itself from the competition. Also, the global automotive industry is going through a few challenges that have limited the investment capacity of automakers. In the second half of 2023, we saw automakers delaying investments across the board, including EV investments. The below graph depicts the number of delayed auto launches by reason.   PwC This trend is expected to be a feature through the end of 2024 as well, making it difficult for BlackBerry to make the most of its recent contract wins. Even more concerning, these delays may open doors for competitors to invest in developing advanced solutions that rival BlackBerry's technology. Third, the company's decision to walk back on the idea to spin off the cybersecurity business will limit the potential for an expansion in market valuation multiples. The IoT business, as a standalone unit, would have attracted premium multiples given the company's positioning in a fast-growing end market. Today, despite efforts by the company to run the two business units separately, the no-growth cybersecurity business is overshadowing the progress BlackBerry's IoT business has made. In my opinion, the best case for an investor is if BlackBerry decides to sell the cybersecurity business while its core technology is still considered strong and relevant and focuses on the growing IoT business. This does not seem to be happening. Takeaway  The meme stock mania is back. So are BlackBerry bulls. I do not expect the meme stock craze to last long this time around, and even if it does, investors who chase the fire will eventually be burned. There are improvements at the business level compared to 2021, but BlackBerry has yet to satisfactorily address some of the long-term growth obstacles I highlighted in this analysis. In the absence of a meaningful catalyst from a financial performance perspective, I believe investors should avoid BlackBerry stock at any cost.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.5","shortVersion":"4.22.5","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2435107145"}