25 June 2020

BlackBerry Unable to Recharge Sentiment with Q1 Profit

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News shaping
the markets today

     

What’s happening: Shares of BlackBerry slumped more than 8% in extended trading on Wednesday despite the company reporting upbeat adjusted profits for the first quarter.

What happened: The Waterloo, Canada-based company boosted its bottom line by cost cutting, trimming its marketing and other costs by $31 million during the quarter.

With adjusted operating expenses dropping around 23%, the company surprised investors by posting a profit in the quarter. Despite exceeding earnings estimates, the US-listed shares of BlackBerry tumbled sharply in after-hours trading.

How were the results: The Canadian company posted a wider net loss for the first quarter, hurt by $594 million in charges related to its Spark reporting unit, while revenue declined versus the year-ago period.

  • BlackBerry’s quarterly net loss increased to $636 million, or $1.14 per share, versus a year-ago loss of $35 million, or 9 cents per share in the same quarter last year. On an adjusted basis, the company posted a profit of 2 cents per share, exceeding estimates of a loss of 2 cents per share.
  • Total revenue declined by 16.6% to $206 million, missing the consensus view of $214.1 million.

Why it matters: BlackBerry benefited from robust demand for its enterprise security software during the quarter, as various companies increased their spending on IT security to protect their employee data, with people working from home during the pandemic.

With the coronavirus-driven crisis resulting in job losses and closing of dealerships, the demand for cars has suffered a massive decline. With this, the demand for the company’s QNX software, which is used in cars, also dropped sharply. BlackBerry's major market, light vehicle sales, declined around 27% in March.

“BlackBerry QNX was impacted by macro headwinds in the auto and other embedded sectors but we are starting to see signs of a recovery,” CEO John Chen reassured the markets.

Management refrained from issuing any financial forecast for the year due to uncertainty related to the pandemic.

US stock indices trading closed sharply lower on Wednesday, with the Dow Jones index shedding 710 points to close at 25,445.94 and S&P 500 slipped 2.6% to 3,050.33.

How shares responded: US-listed shares of BlackBerry lost 3.5% during regular trading hours on Wednesday. The stock fell another 8.5% to $4.50 in after-hours trading following the release of quarterly results.

What to watch: With the company witnessing strong demand for its enterprise security software, investors expect a significant rebound in overall results going ahead. BlackBerry’s shares seem to have further downside, with US stock indexes trading lower in the European session.

The Markets Today

     

The US dollar will be in focus today, with initial jobless claims and other reports scheduled for released later in the day.

Context: The US dollar rose versus the euro on Wednesday as traders preferred the greenback’s safe-haven status despite America becoming a major hotspot of the new covid-19 outbreak. Trade tensions between the US and Europe also helped the greenback trade higher yesterday.

Details: The US continued to report a rise in coronavirus cases, reporting its third-highest daily numbers of 34,700 new infections on Tuesday.

The euro and pound fell against the greenback with news of the US considering imposing tariffs worth $3.1 billion on exports from the European Union and the UK. Global equity markets closed in the red zone yesterday, with US stocks tumbling to around one-week lows.

Germany reported upbeat IFO data, which showed an improvement in the business climate indicator to 86.2 in June, surpassing expectations of a reading of 85. However, the euro was unable to find any support from this data.

The EUR/USD closed lower at $1.1251 in yesterday’s session. The US dollar index, which measures the greenback’s performance versus a basket of major foreign currencies, closed at 97.15.

What to watch: Markets will continue to focus on the coronavirus numbers, with the US reporting around 2.3 million infections and more than 121,000 deaths.

Investors await various economic reports from the US, which are likely to provide direction to the EUR/USD forex pair. Data on initial jobless claims, GDP growth rate, durable goods orders, goods trade balance, wholesale inventories and Kansas City Fed's manufacturing production index will be released later today.

About 1.3 million people are projected to have filed for jobless claims during the latest week. The US economy is likely to shrink by an annualized 5% in the first quarter. Durable Goods Orders are expected to rise 10.9% in May.

If the economic releases meet or exceed expectations, the US dollar could extend gains today, with the EUR/USD trading down 0.12% to $1.1238 in the European session.

Other Markets: European indices were trading lower at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index down by 1.1%, 1.1% and 0.6%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

UAE’s inflation rate, France’s initial jobless claims and unemployed persons, ECB’s general council meeting, UK’s CBI distributive trades, Canada’s average weekly earnings as well as the US corporate profits and EIA’s natural gas stocks.

 

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