Despite economic uncertainty, the networking industry is flourishing as the need for connectivity and digital solutions rises. Moreover, emerging technologies are driving networking businesses to modernize, boost efficiency, and stay competitive. Given this backdrop, let's explore the potential of BlackBerry Limited (BB) and Extreme Networks, Inc. (EXTR).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the tech industry is well-positioned for growth.
The industry is responding to rising demand for networking and communication, thanks to remote work and tech progress. Tech, indicated by Nasdaq's 27.8% year-to-date increase, is on an upswing.
Enterprises are boosting digital capabilities, elevating the demand for advanced networking. The global communication market is projected to hit $1.60 trillion by 2028, growing at a 2% CAGR.
The Biden Administration has introduced the Public Wireless Supply Chain Innovation Fund, allocating $1.50 billion to foster the development of open and interoperable networks. This effort aims to position the United States at the forefront of establishing advanced 5G networks, driving technological advancement.
Furthermore, the swift adoption of 5G will heighten the demand for networking tech, while security issues tied to cloud apps and hybrid work will fuel the need for network security.
The 5G market is expected to hit $106.64 billion in 2023, surging to $990.33 billion by 2028, with a robust 56.2% CAGR from 2023 to 2028. Additionally, global 5G connections are projected to surpass 1.90 billion by year-end.
Considering these conducive trends, let’s examine the fundamentals of the two stocks from the Technology - Communication/Networking industry, starting with the one ranked lower from the investment point of view.
Stock to Sell:
BlackBerry Limited (BB)
Headquartered in Waterloo, Canada, BB provides intelligent security software and services to enterprises and governments worldwide. The company operates through three segments: Cybersecurity; IoT; and Licensing and other.
In terms of the trailing-12-month Capex/Sales, BB’s 0.73% is 70.2% lower than the 2.44% industry average. Likewise, its 0.41x trailing-12-month asset turnover ratio is 33.4% lower than the industry average of 0.62x.
For the fiscal second quarter ended August 31, 2023, BB’s revenue decreased 21.4% year-over-year to $132 million. Its adjusted gross margin decreased 19.6% over the prior-year quarter to $86 million. The company’s adjusted net loss and adjusted loss per share came in at $23 million and $0.04, representing decreases of 20.7% and 2% year-over-year, respectively.
For the quarter ended September 30, 2023, BB’s EPS is expected to remain negative. Likewise, its revenue for the quarter ending May 31, 2024, is expected to decrease 53.1% year-over-year to $175 million. Over the past six months, the stock has declined 28.6% to close the last trading session at $3.67.
BB’s bleak prospects are reflected in its POWR Ratings. The stock has an overall D rating, which translates to a Sell in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and a D for Growth and Quality. It is ranked #41 out of 46 stocks in the Technology - Communication/Networking industry. To access BB’s grades for Value, Momentum, and Sentiment, click here.
Stock to Buy:
Extreme Networks, Inc. (EXTR)
EXTR provides software-driven networking solutions worldwide. It designs, develops, and manufactures wired, wireless, and software-defined wide area-network infrastructure equipment.
On November 7, 2023, EXTR unveiled ExtremeCloud Universal Zero Trust Network Access (ZTNA). This subscription service integrates network, application, and device security, simplifying management and enhancing security across locations such as campuses and remote sites. Universal ZTNA ensures consistent security policies, cost efficiency, and streamlined user network access management.
Nabil Bukhari, Chief Technology Officer and Chief Product Officer at EXTR, foresees Universal ZTNA as a key cloud-based solution for securing the Infinite Enterprise. He stressed its simplicity, cost-effectiveness, and the capability to ensure secure access to any application from any device, anywhere.
On August 15, 2023, EXTR announced the completion of the rollout of a new Wi-Fi 6 network at Old Trafford, Manchester United's stadium. The upgraded Wi-Fi enhances fan experiences, supports digital offerings, and enables real-time insights for improved services and operations.
EXTR announced a partnership with Verizon Business to deploy the ExtremeCloud IQ platform and ExtremeAnalytics solutions, enhancing network performance and fan engagement at a historic venue.
In terms of the trailing-12-month gross profit margin, EXTR’s 58.55% is 18.5% higher than the 49.41% industry average. Likewise, its 13.70% trailing-12-month levered FCF margin is 72.7% higher than the industry average of 7.93%. Furthermore, the stock’s 85.96% trailing-12-month Return on Common Equity is significantly higher than the industry average of 0.41%.
EXTR’s total net revenues for the first quarter ended September 30, 2023, increased 18.6% year-over-year to $353.14 million. The company’s non-GAAP operating income increased 72.8% year-over-year to $62.50 million.
Its non-GAAP net income increased 27.1% year-over-year to $46.54 million. Also, its non-GAAP net income per share came in at $0.35, representing an increase of 75% year-over-year.
Street expects EXTR’s EPS and revenue for the quarter ending December 31, 2023, to increase 7% and 0.7% year-over-year to $0.29 and $320.51 million, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 1.8% to close the last trading session at $17.12.
EXTR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Value. Within the same industry, it is ranked #4. To see EXTR’s Momentum, Stability, and Sentiment ratings, click here.
What To Do Next?
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EXTR shares were trading at $16.34 per share on Thursday afternoon, down $0.78 (-4.56%). Year-to-date, EXTR has declined -10.76%, versus a 18.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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