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investment thesis
blackberries(NYSE:BB) announced its fourth-quarter 2024 financial results, with mixed results. In short, it’s better guidance than meets the eye. This is contrary to what many investors believe.
Still, despite BlackBerry pointing to fiscal 2025 (not to be confused with the calendar year) as having some traction, I still think the stock is worth selling.
quick review
Back in November, I noted in a bearish analysis that
BlackBerry has long been a battleground stock, with passionate bulls and bears arguing their positions. It took a long time before the plow was successfully plowed through.
But I believe that over the past few weeks we have seen two events occur that signal the beginning of a bull market thesis.
I recommend investors call one day and save their capital.
The author’s works on BB
I have been openly bearish on BlackBerry for a long time. For reference, the stock is down about 35% (including premarket gains), while the S&P 500 is up more than 18%. While I do acknowledge there are some positive surprises in this report, I remain bearish on the stock.
Why choose BlackBerry? Why now?
BlackBerry’s near-term prospects appear promising, particularly in its Internet of Things segment, which posted its best quarter ever for revenue and strong growth in its royalty backlog.
The company’s focus on winning design wins, such as partnerships with Hyundai Mobis and leading medical OEMs, underscores its competitive advantage.
However, BlackBerry has faced recent challenges, particularly delays in its software-defined vehicle project, which has impacted its growth potential in the IoT space.
Despite a record royalty backlog, the slow rollout of new software-defined vehicle programs is reflected in lackluster growth in the sector (discussed further soon).
Additionally, budget constraints at some of the company’s government customers are expected to prevent BlackBerry’s cybersecurity business from thriving in the short term. However, BlackBerry continues to implement significant cost-saving measures to improve its profitability, which we’ll discuss in a moment.
In fact, given that background, let’s now take a deeper look at its financials.
Guidelines need substantive explanations
BB revenue growth rate
Even though I’m openly bearish on BB, that doesn’t stop me from pointing out that BlackBerry’s guidance is much better than what many investors on Seeking Alpha and elsewhere are claiming.
In the chart above, I’ve excluded the patent sales figure of $218 million for guidance purposes only. I believe this helps add context. To reiterate, the guidance above has not yet been adjusted for patent sales in the first quarter of 2024.
All in all, looking forward, this means that the first fiscal quarter of 2025 is expected to be down around 6%. Perhaps more impressively, some growth is expected in the later quarters of fiscal 2025.
Additionally, some comments during the earnings call led to belief that the much-heralded Internet of Things segment could end up seeing mid-single-digit growth. That’s far from solid growth for the coveted division within BlackBerry, but it’s also far from a dead company.
Next, we’ll discuss its valuation.
BB stock valuation — 53x forward EBITDA
Going forward, BlackBerry expects to achieve approximately $10 million to $20 million in adjusted EBITDA.
That being said, given that adjusted EBITDA is expected to be around negative $10 million in the first quarter of fiscal 2025, this means that once BlackBerry gets through the first quarter of fiscal 2025, it can be inferred that its underlying profitability should improve. Improvement, resulting in approximately $20 million in EBITDA for the remaining nine months of fiscal 2025.
So if all goes well for BlackBerry, this could mean the company will reach $30 million in EBITDA sometime in fiscal 2025. This leaves BlackBerry with the smallest growth, at 53 times EBITDA.
Meanwhile, BlackBerry’s balance sheet currently holds about $40 million in net cash. In fact, perhaps the best takeaway of the season was paying down debt and successfully raising $200 million at 3% interest.
bottom line
In conclusion, despite BlackBerry’s mixed Q4 2024 earnings results and guidance suggesting a better outlook than initially expected, I maintain my bearish stance on the stock.
While there were some unexpected positives in the report, such as a promising near-term outlook for the IoT space with its best-ever revenue quarter and strong growth in royalty backlog, significant challenges remain.
However, BlackBerry’s ongoing efforts to implement cost-saving measures and improve profitability offer some hope.
Going forward, the guidance needs some substance, with some growth expected in the final quarters of fiscal 2025.
Still, I think paying 53x forward EBITDA for BlackBerry is too much.
