BlackBerry Rode the Meme-Stock Rally. Analyst Says It Has Gone Too Far.


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The BlackBerry logo is shown at the Mobile World Congress in Barcelona in 2019.


Josep Lago/AFP via Getty Images


BlackBerry

 posted slightly better than expected results, but the stock is down after Canaccord Genuity analyst T. Michael Walkley cut his rating on the company to Sell from Hold.

For for its fiscal first quarter ended May 31, BlackBerry (ticker: BB) posted revenue of $174 million, down 15.5% from a year ago, and off 17.1% sequentially, but above the Wall Street consensus forecast for $171 million. The former smartphone company, now a maker of software for cybersecurity and the internet of things, lost 5 cents a share on a non-GAAP basis, in line with Street estimates.

Under generally accepted accounting principles, BlackBerry lost 11 cents a share. The company said revenue in the quarter included $107 million from cybersecurity, $43 million from the internet of things segment, and $24 million from licensing and other sources.

The company said its IoT operation, mostly the company’s QNX embedded software business, saw strong growth from automotive customers despite the global chip shortage. BlackBerry said that “design activity remains strong” as car companies continue to incorporate its technology into vehicles they are developing.

In a research note, Canaccord’s Walkley said his call boils down to valuation. With the stock up more than 90% for the year to date as meme-stock investors have bid up the shares, the time has come to take profits, he said. Walkley kept his target for the share price at $10, well below Thursday’s closing level of $12.68.

Friday morning, the shares were down 6.4% at $11.87. The “recent sharp appreciation in the share price to well above our price target results in us downgrading” the stock to Sell, he wrote.

BlackBerry, which has long since exited the smartphone market, is trying to sell its related patent portfolio. If the company finds a buyer, Walkley said, it could unlock value for investors and provide capital needed for faster growth in the software and services businesses.

Management has a coherent strategy, and the business is turning the corner, the analyst said, but noted that he is awaiting “proof in execution on the new product roadmap, evidence of cross-selling opportunities emerging, growing overall software and services revenue, and the potential for upside to our estimates before becoming more constructive on the shares.”

Write to Eric J. Savitz at eric.savitz@barrons.com