BlackBerry Pops 8% After 2Q Profit Surprises; Street Says Hold

Shares in BlackBerry are soaring 8% in Thursday’s pre-market session after the company’s second-quarter earnings exceeded analysts’ expectations fueled by demand for its security software products during the coronavirus pandemic.

BlackBerry’s (BB) total revenue for the second quarter ended Aug. 31 rose to $259 million from $244 million, surpassing the Street consensus of $237.03 million. Non-GAAP earnings amounted to 11 cents per share versus analysts’ forecast of a profit of 2 cents per share. The company’s net loss narrowed to $23 million, or 4 cents per share, from $44 million, or 10 cents per share, in the year-ago period.

“We are pleased to report sequential and year-over-year revenue growth this quarter, exceeding expectations, despite the ongoing challenges from COVID-19,” said BlackBerry CEO John Chen. “Continued demand for our secure, ‘Work from Anywhere’, solutions remains a major driver for our BlackBerry Spark business, which performed well this quarter. Some signs of recovery in auto production point to sequential revenue growth and a return to a normal run rate for QNX by early next year. Continued QNX design wins and significant cybersecurity partnerships position the business strongly for the future.”

Net cash generated from operating activities was $31 million during the reported quarter. BlackBerry said that during the quarter, it redeemed $605 million of convertible debentures and issued $365 million of new convertible debentures – reducing its debt level by $240 million and saving $16 million of interest expense on an annualized basis.

Shares in BlackBerry have plunged 25% year-to-date, and the Street has a cautious Hold consensus on the stock’s outlook with 5 recent Hold ratings. The BlackBerry average analyst price target of $5.70 indicates 19% upside potential from current levels.

RBC Capital analyst Paul Treiber recently maintained a Hold rating on the stock with a $5 price target as the analyst was still looking for stronger growth to drive material upside for the shares..

“BlackBerry has secured a number of design wins in the automotive segment. While positive, we believe the future revenue from these design wins is difficult to predict considering that penetration is unknown and pricing pressure has reduced ASPs in the automotive segment” the analyst told investors. (See BB stock analysis on TipRanks).