Should You Buy BlackBerry Ltd (BBRY) Stock After The Latest Earnings Beat?

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BlackBerry stock declined by 3% after it reported a beat on earnings but a miss on revenue. Should you buy BBRY stock now?

Yesterday, software and services company BlackBerry Ltd (NASDAQ:BBRY) released its Q3 2017 earnings report (1). It was Blackberry’s first earnings after the company decided to shut down its legacy handset division. The earnings report appears to be more of the same. The Waterloo, Ontario-based company once again reported an earnings beat and a miss on revenues. The company reported a Non-GAAP EPS of $0.01 on revenue of $301 million against the analysts’ estimates of -$0.02 EPS on revenue of $332 million. BlackBerry stock rallied more than 3% just after the earnings were announced in pre-market trading. However, the stock moved lower as the market began to digest the ER, closing down by almost 3%.

The Turnaround In Progress?

The earnings report has lots of positives, starting with the Non-GAAP profitability and the beat. The company also raised its outlook for the third consecutive quarter. BlackBerry now expects to be profitable for the full year (in Non-GAAP terms), a significant improvement from the earlier guidance between a loss of 5 cents per share to break even. Many bulls will point out that the revised guidance indicates that the turnaround is in progress. At the beginning of the year, the full year consensus analysts estimate was for a loss of $0.33 per share. Now, BlackBerry is expected to report a profit!

BlackBerry Ltd (NASDAQ:BBRY) also reported a record gross margin on both Non-GAAP and GAAP basis. The Non-GAAP gross margin came in at 70%, up from 63% in the previous quarter. For the twelfth consecutive quarter, the company reported an adjusted positive EBITDA of $37 million. The company also expects to see 30% YoY growth in software revenue for the full year. The company also signed multiple agreements with various companies including Ford Motor Company (NYSE:F).

Is BlackBerry Really Profitable?

Though the above numbers make it sound as if BlackBerry had a really good quarter, it is not necessarily true. Revenue is still seeing a consistent decline and the company is still losing money on a GAAP basis. While the company reported a Non-GAAP profit, on GAAP basis the EPS came to -$0.22. The non-GAAP profit excludes the non-cash expenses such as stock-based compensation and inventory writedowns. But in a way they are actually a cost, and they directly impact the equity section of the balance sheet.

SEC has already expressed its displeasure at such practices and is planning to tighten the rules around earnings reporting. It sees such practices as distorting the actual financial performance of the company. The GAAP revenue came in at $289 million. So actually Blackberry reported a loss of $117 million on a revenue of $289 million, net loss margin of 40%. But if you look at the non-GAAP number, Blackberry has a net profit margin of 2%.

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