Time to Buy the BlackBerry Turnaround?
Most people know BlackBerry ( BB) as a has-been of the phone industry. Gone are the days when BlackBerry phones dominated the corporate and business cell phone market, or when BlackBerry Messenger (BBM) was at the pinnacle of the texting game. In recent years, BlackBerry has been nothing short of a financial and strategic mess. Failing to respond to shifting technology and consumer preferences, or to meet the challenge of rising competitors such as Apple ( AAPL)'s iPhone and Android-powered smartphones, BlackBerry's products fell from favor and failed to recover.
Despite years of hopeless flailing and eroding relevance, hope for a turnaround has been kept alive. In 2013, John Chen took the helm as CEO of the ailing company and has spent the last half-decade trying to right the ship.
Now, the question is this: Has it worked?
BlackBerry's top line has suffered most severely. Total revenue has continued to decline over the last four years, plummeting from well over $3 billion in 2014 to a comparatively paltry $900 million in 2017. This is a decline of more than 250% -- not a great sign, to say the least.
However, gross profit has stabilized, in most part because cost of revenue has decreased so much. BlackBerry's new business focus (internet security discussed in-depth below) has much stronger margins than the hardware cell phone business. Cost of revenue decreased significantly from 2016 to 2017, from $667 million to just $251 million. So, even though revenue dropped by $400 million in the same period, gross profit actually increased slightly from $642 million to $681 million.
Further, net income, which has been strongly declining over the last four years, finally headed back into positive territory last year. Whereas the net losses posted in 2014, 2015 and 2016 amounted to $304 million, $208 million and $1.2 billion, respectively, 2017 witnessed a profit inflection, with the company posting $405 million in positive net earnings.
BlackBerry's financial story is one that needs to be carefully parsed because the company's margins are suffering from the massive decline of its phone hardware business. But, if examined closely, we see some reasons to be optimistic.
BB is a UVM Pick
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