The networking industry thrives amid rising demand for connectivity and digital solutions. Emerging technologies compel networking businesses to modernize, enhance efficiency, and maintain competitiveness.
However, not all stocks in this space are well-positioned to benefit from the industry trends. BlackBerry Limited (BB) is one such stock from the networking industry that I think is best avoided now. However, Ribbon Communications Inc. (RBBN) could now be an ideal addition to the watchlist.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the tech industry.
The industry is meeting increased demand for networking and communication due to remote work and tech advancements. The widespread adoption of digital solutions is transforming business models across various sectors. The Nasdaq Composite's 40.8% year-to-date increase justifies investors’ interest in the industry.
The Biden Administration launched the $1.50 billion Public Wireless Supply Chain Innovation Fund to promote open and interoperable networks, positioning the U.S. at the forefront of advanced 5G networks and technological progress. Global 5G connections are projected to surpass 1.90 billion by year-end.
According to Statista, global spending on digital transformation is set to reach a record $3.40 trillion by 2026, with digitally transformed organizations contributing over half of the global GDP. The global communication market is expected to reach $1.60 trillion by 2028, growing at a 2% CAGR.
Furthermore, the rapid adoption of 5G will boost networking tech demand and security concerns with cloud apps and hybrid work will drive network security needs. The 5G market is projected to reach $990.33 billion by 2028, growing at a 56.2% CAGR.
Considering these 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 #2: 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 68.8% lower than the 2.33% 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 November 30, 2023, BB’s EPS is expected to remain negative. Likewise, its revenue for the quarter ending May 31, 2024, is expected to decrease 53.2% year-over-year to $174.75 million. Over the past three months, the stock has declined 19% to close the last trading session at $4.36.
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 a D grade for Growth, Stability, and Quality. It is ranked #41 out of 46 stocks in the Technology - Communication/Networking industry. To access BB’s Value, Momentum, and Sentiment grades, click here.
Stock #1: Ribbon Communications Inc. (RBBN)
RBBN provides communications technology in the United States, Europe, the Middle East, Africa, the Asia Pacific, and internationally. It operates through two segments, Cloud and Edge and IP Optical Networks.
On December 12, 2023, RBBN announced a partnership with BroadSource to bolster credit card data security. BroadSource chose RBBN's SBC SWe for its PCI-DSS compliant secure payments system, SecureCall. This cloud solution ensures PCI compliance for merchants, safeguarding credit card data during online or phone transactions.
On November 8, 2023, RBBN announced that W3TEL, a French provider of communication services to enterprises, has chosen RBBN’s solutions, utilizing Ribbon's STIR/SHAKEN solution, for network expansion, operational simplification, and compliance with French government call security mandates.
In terms of the trailing-12-month gross profit margin, RBBN’s 51.58% is 6% higher than the 48.67% industry average. Likewise, its 0.71x trailing-12-month asset turnover ratio is 14.5% higher than the industry average of 0.62x.
RBBN’s revenue for the third quarter ended September 30, 2023, came in at $203 million. The company’s non-GAAP adjusted EBITDA increased 21.7% year-over-year to $28 million. Its non-GAAP net income increased 125% year-over-year to $9 million. Also, its non-GAAP EPS came in at $0.05, representing an increase of 150% year-over-year.
Street expects RBBN’s EPS and revenue for the quarter ending December 31, 2023, to increase 48.9% and 0.5% year-over-year to $0.13 and $234.76 million, respectively. Over the past month, the stock has gained 27.5% to close the last trading session at $2.60.
RBBN’s POWR Ratings reflect its mixed prospects. It has an overall rating of C, equating to a Neutral in our proprietary rating system.
It has a B grade for Growth and Value. Within the same industry, it is ranked #7. To see RBBN’s Momentum, Stability, Sentiment, and Quality ratings, click here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
BB shares were trading at $4.39 per share on Friday morning, up $0.03 (+0.69%). Year-to-date, BB has gained 34.66%, versus a 24.07% 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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