BlackBerry: Never Fails To Disappoint – BlackBerry Ltd. (NASDAQ:BBRY)

BlackBerry (NASDAQ:BBRY) is trading down over 10% today and below the key $10 level on disappointing FQ1 results. The numbers should bring investors back to the stark reality that a $20 price target proposed by Citron Research is a long ways off as my prediction stated at the time.

The former smartphone maker headed to enterprise software company has a history of missing forecasts. Should investors really buy into the bright software future?

My big hesitation on buying into the strong software future of BlackBerry is the history of disappointments. The company has now missed revenue targets in five of the last six quarters.

Source: Seeking Alpha earnings page

One key for a potential investor is to really grasp the level of the revenue miss. BlackBerry reported FQ1 revenues of $244 million. Due to exiting the hardware division, revenues were down sharply from $424 million last year.

So the level of the decline isn’t important, but the key is the size of the miss. A $20 million miss now is a massive 7.5% below the $265 million analyst estimate. From the table above, BlackBerry has a history of missing estimates in this range that is completely unacceptable for an investment.

The more important issue is the software and services revenues coming in at only $169 million. Revenues only grew modestly from $166 million last year.

These numbers should reinforce guidance that software and services revenue of growth of only 15% as projected by the company and not the grandiose view of investors when thinking about the opportunities in cyber security, machine learning and connected cars. At that growth rate, software segment revenues would only hit about $780 million this fiscal year.

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How much do you want to pay for a stock with a history of missing targets? BlackBerry is worth about $5.4 billion now with net cash in the $1.7 billion range. The enterprise value likely doesn’t dip below $3.0 billion or somewhere around $8.50 per share. The previous resistance likely becomes support in this equation.

The upside seems capped until the company can prove that revenue growth is sustainable and predictable for once. For the stock to reach $12, BlackBerry would trade at an EV/sales multiple of 5x. This number appears aggressive in the case of BlackBerry.

The key investor takeaway is that investors shouldn’t fall for the connected car and cyber security hype surrounding the stock. The actual results continuously show that the management team has a history of execution issues that doesn’t warrant a premium price on the stock.

Don’t buy into the hype on BlackBerry and resist buying the shares until a dip back to previous resistance around $8.50 and possibly once the stock closes the gap down to $8.00.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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