This evening, security software specialist BlackBerry (BB) is scheduled to report its financial results for its fiscal fourth quarter and full year 2021 — and here’s a wrinkle for you:
The U.S. Securities and Exchange Commission just told the company to stop talking about “non-GAAP revenue,” a completely non-standard financial metric that doesn’t conform to generally accepted accounting principles, that BlackBerry thought up on its own… and that it’s been citing for at least the last five years!
In a 2019 earnings report, for example, BlackBerry defined the term as referring to “software deferred revenue acquired but not recognized due to business combination accounting rules.” But the SEC says that because BlackBerry’s “deferred revenue and commission expense were adjusted to fair value at the time of acquisition pursuant to GAAP, these non-GAAP adjustments intended to eliminate the impact of purchase accounting substitute individually tailored recognition and measurement methods for those of GAAP.”
And that’s apparently a no-no.
BlackBerry only promised to stop referring to non-GAAP revenue effective this fiscal year, however, so when it tells investors about last year’s results today, it’ll get one last chance to frame its numbers in the manner of its choosing. Even that may not be enough to make BlackBerry stock look like a “buy,” however.
At least, not in the opinion of RBC Capital analyst Paul Treiber.
Treiber argued that no matter how BlackBerry tries to fudge the numbers, Q4 results are only likely to meet consensus sales targets — not beat them. “It is possible there’s upside to our IP licensing estimates,” concedes the analyst. However, “core software” sales “may remain soft.” When all’s said and done, the analyst expects BlackBerry’s Q4 sales will end up falling 16% year over year, to $246 million. Treiber thinks the company will probably earn a profit of $0.04 per share on those sales, though, and if he’s right about that, then that would “beat earnings” estimates of $0.03 per share.
So why is Treiber recommending that investors sell BlackBerry stock, if he thinks the company will beat earnings? Well, there’s the trend of declining sales for one thing, of course. Treiber also warns of the effect that global semiconductor shortages might have on BlackBerry’s QNX/BTS software business. And he warns that downloads of the “BlackBerry Work” application declined 20% year over year in Q4. At a time when downloads of similar software produced by BlackBerry competitors are on the rise, that’s indicative of a loss of market share by BlackBerry.
Despite all this bad news, the analyst points out that BlackBerry’s share price is up 50% year to date. On a stock that lost money in three of the past five years, a stock that’s headed for another full-year loss for fiscal 2021, and a stock that most analysts agree will lose money for at least the next three years straight, that seems like a fundamental disconnect between stock price, and business prospects.
And in Treiber’s view, it’s a good reason to sell BlackBerry stock ahead of earnings. Treiber puts a $7.50 price target on BB shares, which implies ~20% downside from current levels. (To watch Treiber’s track record, click here)
The RBC analyst is not the only BlackBerry pessimist. The stock has a Strong Sell consensus rating based on 3 Sell reviews. While not quite as bearish as Treiber’s forecast, the projection is for downside of ~7%, given the average price target currently stands at $8.70. (See BB stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
