The Clouds Are Getting Darker for Blackberry (BB) Stock

The bad news gets worse for Blackberry (BB).

The former-smartphone manufacturer reported disappointing second-quarter earnings before open Tuesday, sending shares into a free fall. The main culprit to the drop was slowing growth on revenue — revenue grew 22% this quarter, which was less than the 23% rate it saw last quarter. Furthermore, EPS dropped from $0.04 per share to breakeven.

On the results, 5-star Canaccord analyst Michael Walkley has dropped his price target by $2, to $7 per share, while maintaining a Hold rating on BB stock.

As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Walkley has earned a yearly average return of 16.2% with a 62% success rate. Walkley is ranked #89 out of 5,544 analysts.

After shares plummeted following the first quarter’s earnings release, investors were hoping Q2 would be different. A major sticking point in Q1 was Cylance — the recently-acquired security firm — and Blackberry’s Enterprise Software and Services (ESS) segment, which both showed worse-than-expected performance. Investors were looking for clearer skies in Q2. However, this did not happen the way investors hoped. While Cylance beat management’s expectations, ESS again performed weaker-than-expected. The CEO said this was due to “the retooling of our sales force,” which he expects to continue over the next few quarters. Revenue from the IoT segment (where ESS falls under), fell by about 10% since last year.

But Cylance did prove to be a relative bright spot. The segment saw revenue grow 30% since last quarter, to $51 million, only slightly less than Walkley’s estimate of $53 million. Furthermore, Walkley says that Blackberry has integrated Cylance well into its operations, and sees the potential for cross-selling.

As a result of the “disappointing” earnings, Walkley is lowering his estimates for this and next year, which is contributing to the drop in his price target. The analyst believes “ESS is now tracking to decline double-digits during F2020, resulting in us modeling IoT revenue to decline 4% in F2020,” and pushing overall F2020 revenue forecast about 6%. Blackberry, too, has revised its estimated downward.

All in all, Wall Street continues to show hesitation on Blackberry, with TipRanks analysis of nine ratings showing a consensus of Hold rating. Eight analysts are recommending Hold, while one is selling. The average price target currently stands at $7.11, representing a 33% rise from current levels. (See BB’s price targets and analyst ratings on TipRanks)

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