In 2021, BlackBerry Limited (NYSE: BB)reached a valuation not seen in many years. Unfortunately, those were not sustainable moves as short-squeezes are like a tide – they eventually have to withdraw.
Yet, the company cannot rely on retail trends to prop the valuation up; at this stage, the priority should be revenue growth.
- Non-GAAP EPS: US$0.00 (beat by US$0.07)
- GAAP EPS: - US$0.05 (beat by US$0.11)
- Revenue: US$184m (beat by US$7.42)
- Revenue Growth: -17.9% Y/Y
- Cybersecurity revenue: US$128m
- Cybersecurity gross margin: 59%
Looking at the earnings report, revenue growth seems to be the elephant in the room. With the current price-to-sales ratio at 6.45, it becomes hard to justify the comparison to growth stocks that trade around that number.
In guidance, the company sees revenues for its largest cybersecurity unit, at US$125m-150m. However, FY revenue has been trending down in the last months. From US$495m-515m to 480m-490m.
Furthermore, in the consolidated statement, investment income stands out as an income that played a part in outperforming the expectations.
On a positive note, the company seems to be increasing its penetration in the automotive market. In the last few weeks, Mahindra & Mahindra and BMW both announced agreements to use BlackBerry's QNX technology in their vehicles. So far, this technology is involved with 45 OEMs and over 195 million vehicles worldwide.
What Is BlackBerry's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of August 2021, BlackBerry had US$782.0m of debt, an increase of US$610.0m over one year. On the flip side, it has US$707.0m in cash leading to net debt of about US$75.0m.
How Strong Is BlackBerry's Balance Sheet?
According to the last reported balance sheet, BlackBerry had liabilities of US$403.0m due within 12 months and liabilities of US$911.0m due beyond 12 months. On the other hand, it had cash of US$707.0m and US$153.0m worth of receivables due within a year. So it has liabilities totaling US$454.0m more than its cash and near-term receivables combined.
Since publicly traded BlackBerry shares are worth a total of US$5.26b, it seems unlikely that this level of liabilities would be a major threat. However, we think it is worth keeping an eye on its balance sheet strength, as it may change over time.
But either way, it's fair to say it does not have a heavy debt load. But ultimately, the future profitability of the business will decide if BlackBerry can strengthen its balance sheet over time. So if you're focused on the future, you can check out this free report showing analyst profit forecasts.
Growth Concerns are Ahead of Debt
Looking back at the year, over the last 12 months, BlackBerry made a loss at the EBIT level and had revenues decline 23% to US$777m. While BlackBerry's falling revenue is concerning, arguably its earnings before interest and tax (EBIT) loss is even less appealing.
Looking 5 years in the rear-view mirror, it seems that the company's debt to equity ratio is staying around the same. Debt is not significantly changing while revenues are declining. Although the company has the means to endure the unprofitability, it is hard to justify its valuation ratios at this moment.
The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, every company can contain risks outside of the balance sheet. Be aware that BlackBerry is showing 2 warning signs in our investment analysis, which you should know about...
At the end of the day, it's often better to focus on companies free from net debt. You can access our free special list of such companies (all with a track record of profit growth).
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.