Ticker Reports for June 27th
BlackBerry Stock: Strong Earnings, Profitability Challenges Ahead
BlackBerry (NYSE: BB), one of the many companies that was once part of the “meme stocks” craze, is a technology firm that has transitioned its business from its handheld devices of the 2000s. The firm's operations now revolve around cybersecurity and Internet of Things (IoT) solutions. With a market capitalization of $1.5 billion, it's still a somewhat large firm but has experienced dreadful performance recently.
The share price is down nearly 54% over the last 12 months as of Jun. 26. This isn't surprising given it has reported negative to barely positive earnings over the last several quarters. The firm released its fiscal year 2025 first-quarter earnings on Jun. 26, 2024. Shares have been increasing since the earnings release as the firm nears closer to consistent profitability. Let’s dive into the company’s products and services, recent earnings report, and outlook for the future to understand how investors should think about the firm.
BlackBerry’s Business Lines: AI Cybersecurity and Internet of Things Solutions
BlackBerry has two main cybersecurity solutions: Cylance and Unified Endpoint Management (UEM). Cylance utilizes AI to detect and prevent cybersecurity threats directed at endpoint devices such as smartphones, computers, and tablets. 24/7 threat monitoring and providing secure access to applications to prevent the loss of data are other essential features. It also provides intelligence tools to analyze trends in cyberattacks and help businesses find preventative solutions.
Unified Endpoint Management works to secure information on mobile devices. This includes secure file sharing, voice and text messaging, and protecting information stored within apps.
Two notable products in BlackBerry’s Internet of Things business are BlackBerry QNX and BlackBerry IVY. QNX provides real-time operating systems for connected devices in the automotive, medical, and industrial industries. These precise operating systems enable many custom-built machines, like those in a car, to converse seamlessly.
BlackBerry IVY, developed with Amazon Web Services, uses AI to securely deliver data and insights to automakers. Automakers use this information to improve customer experiences. It's compatible with a wide variety of vehicle models and brands.
BlackBerry monetizes these products through licensing agreements. Some competitors in the cybersecurity space include Broadcom (NASDAQ: AVGO), CrowdStrike (NASDAQ: CRWD), and SentinelOne (NYSE: S).
BlackBerry's Earnings Report: Solid Results Highlight IoT Growth But Cybersecurity Decline
BlackBerry beat earnings per share (EPS) estimates by one cent, reporting a loss of $0.03 versus a $0.04 expected loss. It also beat on revenue, reporting $144 million versus $132 million expected.
There were differing results for the cybersecurity and IoT segments. Cybersecurity revenue fell by $8 million from the previous year, while IoT revenue rose by $8 million. This equates to a decline of 9% for cybersecurity and a growth of 18% for IoT.
This has positives and negatives. Cybersecurity is the more significant segment, accounting for 59% of total revenue. Seeing the most critical segment of the firm's business contracting is a red flag. Yet, the IoT segment has significantly higher gross margins at 81% versus 59% for cybersecurity. Growth in the firm's higher-margin segment will go a long way in helping it achieve profitability.
BlackBerry did well in increasing its overall gross margins to 67% from 48% last year, but revenue was down 61%. This contributed to an adjusted EPS of negative $0.03 versus positive EPS of $0.06 last year. BlackBerry needs to find a way to increase its gross margins and get back to its higher revenue levels if it's hoping to be consistently profitable.
BlackBerry's Outlook: Challenges to Profitability Amidst Automotive Royalty Backlogs
It seems unlikely that Blackberry will be able to achieve profitability this year. Its guidance shows a midpoint revenue of $602 million for the full year. This means, on average, it predicts quarterly revenue of $150 million. The firm had operating expenses of $135 million last quarter, a 29% drop from last year. It's hard to see how the company will be able to further reduce its operating costs to allow an overall profit once it accounts for costs of goods sold (COGS). COGS came in at $48 million last quarter.
One source of hope for near-term profitability is the firm’s $815 million in royalty backlogs associated with systems it provides to automakers. These are payments the firm expects to receive that haven't been paid due to backlogs in automotive production. If automotive production picks up, it'll be a big boost for BlackBerry. The average updated analyst price target comes in at $2.90, implying a moderate upside.
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Progress Software Stock Back in the Green After Beating Forecasts
Progress Software (NASDAQ: PRGS) is a technology company within the systems software sub-industry. The stock reached its 2024 low on Jun. 20, when it was down nearly 11% year to date. The firm reported its second-quarter financial results on Jun. 25, 2024, and is back in the green, now up almost 2% on the year. The firm's results impressed the market, with the stock shooting up nearly 13% on the day following the release. Let's explore Progress Software's products, recent financial results, and outlook to understand whether this is a name to consider adding.
Explore Progress Software's Product Lineup: AI-Powered Solutions for Developers
The firm's 2023 annual financial report, or Form 10-K, provides descriptions of 12 different software products the firm offers. The firm's main products allow software developers to create, deploy, and manage their applications more efficiently. It also provides software that enables secure file transfer and a solution that enables data sharing between different applications. Some of the most notable products include Progress OpenEdge, Progress Chef, and Progress Developer Tools. Many of these products are AI-powered.
The firm monetizes these products mainly through perpetual licenses, which allow the use of the software indefinitely. It also offers renewable term licenses on some products and a subscription model for its cloud-based offerings. Along with its licenses, the firm also provides product maintenance that gives access to software updates and technical support. Purchasers of perpetual licenses have the option, but not the requirement, to add maintenance support. The firm actually makes the majority of its revenues from its maintenance services. 58% of total revenue came from this stream in 2023.
Progress does not identify any direct competitors in its annual filing, but some companies that offer similar products include Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Oracle (NYSE: ORCL).
Progress Software's Impressive Financial Results: Surpassing Expectations
Results surpassed expectations on many fronts. Second-quarter revenues were $175 million, beating out the $170 million guidance midpoint and the $169 million consensus estimate. Earnings per share (EPS) also beat expectations, coming in at $1.09, well above the guidance midpoint and consensus estimate of $0.95.
Other essential measures shined as well. Annual recurring revenue (ARR) was $579 million. This measures the value of all contractually binding agreements the firm has in place. Contracts provide a reliable source of revenue, ensured by their legal binding. About 83% of the firm’s total revenue comes from annually recurring sources. The Net Retention Rate was 99%, which measures the firm’s ability to renew or replace annual recurring revenue.
Days Sales Outstanding (DSO) has also been consistently improving. DSO measures how many days it takes to convert sales purchased on credit into cash. DSO was at 50 days in Q2 2023 and dropped to 44 days in Q1 2024. It fell again to 41 days in Q2 2024. This shows the firm is getting paid by customers faster and is consistently becoming more capable in that area. Lastly, adjusted free cash flow grew by 33% from Q2 2023. Overall, this was an impressive report from Progress.
Progress Software’s Guidance and Outlook: Increased 2024 Revenue and EPS Projections
Not only did Progress show impressive backward-looking results, but it also raised its future expectations. The company raised its fiscal year 2024 revenue guidance by $3 million and increased its EPS by 5 cents. Analysts are bullish on the stock, with five buy ratings and two holds.
The average price forecast sits at $63.14, implying a 15% upside. The firm has a projected earnings growth rate of 9%, on the low side relative to its industry.
In the firm’s quarterly earnings conference call, executives detailed the initiatives the firm is pursuing going forward. These include further integrating generative AI into its products and using AI internally to optimize the company's operations.
The firm is also actively involved in M&A activity. It is currently conducting due diligence on the potential acquisition of Irish software company MariaDB.
Lastly, the firm is dealing with the aftermath of a data breach that involved one of its products. At the end of May, the Spanish Data Protection Agency informed Progress that it would not take regulatory action against the firm.
Progress Software’s recent earnings report was impressive, but the modest implied upside and projected growth are concerning. However, the firm has made a habit of consistently beating its estimates, so it's possible it can do much better than analysts expect over the long term.
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Goldman Sachs Raises Stock Target for Affirm: Key Insights
Despite what most market investors may believe, the new business model taking over the consumer discretionary sector and even the financial industry is here to stay much longer. Known as buy now, pay later (BNPL), this business model is precisely what today’s consumer needs as the U.S. economy remains somewhat directionless.
Inflation-choked consumers have had to resort to credit, which is not working today. According to reports by banks like Bank of America and other financial institutions, credit card delinquencies have been rising lately. Investors can check this trend inside the Federal Reserve’s economic data website and notice how delinquencies are now back to levels not seen since the fourth quarter of 2011.
Because credit cards are becoming a less viable option for consumers, this BNPL service brings consumers a lifeline. There is one major company in the space, with few competitors, that stock is Affirm Holdings Inc. (NASDAQ: AFRM), and its path to help today’s consumer has earned it some of Wall Street’s love; here’s how.
Keeping Up with Affirm: The Main Drivers Fueling Stock Growth
Shares of Affirm are now trading at 60% of their 52-week high prices, which would be synonymous with the term ‘beaten down.’ However, investors will find many reasons why this price level is unjustified, all within the company’s third quarter 2024 quarterly earnings release.
Starting with some of Affirm’s key performance indicators (KPIs), here’s what investors will immediately notice. Gross merchandise volume grew to $6.3 billion, or 36% over the year. This roughly translates into $576 million in revenue, which also jumped by an attractive 51% over the year.
Gross profits finished the quarter at $231 million, advancing by 38% annually. When it comes to net income and earnings, investors should watch out for what some call ‘creative accounting’ or other tactics used by management to make it seem like the company made more money than it actually did.
A more accurate proxy for earnings can be found in a company’s cash flow statement, specifically in the operating cash flow total. For Affirm, $208.1 million made it to the operating cash flow line item, compared to a net operating outflow of $54.2 million.
To keep this trend up, investors may wonder what needs to happen behind the scenes. The answer is more of the same. Affirm reports 18.1 million active consumers, which grew by 9.6% over the year. More than just customers, Affirm needs merchants to start adopting its services and trust that it will work with its products.
Total active merchants grew to 292,300 from 254,100 a year prior, or 15% growth. Such high adoption rates from consumers and merchants could bring the company to continued profitability. Here’s how management feels about the future.
Insiders' 2024 guidance shows that Affirm's gross merchandise value will be $6.7 billion to $6.9 billion, much higher than today's. Revenue guidance also indicates expected growth of roughly $20 to $30 million.
No Need to Worry: Analysts Are Positive on the Company
Despite national credit card delinquencies rising, Affirm's customers seem to be doing okay. Affirm does not report to the leading credit agencies, so if an account is delinquent, it does not affect a customer's FICO score. Customers seem more responsible than otherwise.
Affirm’s shareholder letter will show investors that 30+ day delinquencies have declined annually for its customers, unlike delinquencies seen across the nation’s commercial banks.
This quality of credit, coupled with double-digit KPI growth, led analysts at Goldman Sachs to place a buy rating on the stock alongside a price target of $42 a share. Considering where the stock trades today, that valuation would present an upside of up to 33.7%.
But these analysts weren’t the only ones on Wall Street who became bullish on Affirm stock lately. The Vanguard Group boosted its stake in the stock by 4.1% as of March 2024, bringing its net position up to $958.6 million today.
Moreover, Affirm stock’s price-to-sales (P/S) ratio of 6.1x stands at a premium above the personal credit institutions industry’s average P/S valuation of 2.0x. There must be a good reason markets are willing to pay a premium to gain exposure to Affirm’s future sales, especially in today’s economy.
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