BlackBerry Limited (NYSE:BB) as 2021 is coming to its end, should terminate once and for all its meme stock status that sent it to perform relatively well amid poor fundamentals. Instead, the best option to survive and become a leader in the technology sector would be to find its economic moat and explore it as much as possible, whether this is the cybersecurity business, the IoT, or the applications related to the automotive industry.

Back in June, my previous article on Blackberry pointed out that “BB stock looks like it’s stagnating or getting worse, not better, by financial metrics.” I wondered why the stock had performed well without any key fundamental reasons. I questioned the business plan that seems ambitious but, it has yet to deliver any strong results and I was not impressed by its financials.

I asked, “But a close and analytical look at the industries the company is trying to provide solutions for reveals something worrying — where are the business focus and the economic moat?” Have things changed after almost six months later for Blackberry to change my mind from being bearish to bullish? I will not leave you wondering, the short answer is unfortunately no. My arguments are based on risk factors, financial performance, and a lack of momentum in sales growth.

Risk Factors: What Annual Report Tells Us

Blackberry in its 10-K report for FY 2021 cites several key risks related to its business. I will mention only three of these business risks because they have been materialized and have a strong impact on financial performance.

The first risk mentioned was that “The Company may not be able to enhance, develop, introduce or monetize products and services for the enterprise market promptly with competitive pricing, features, and performance.”

The second risk wa, “The Company may not be able to maintain or expand its customer base for its software and services offerings to grow revenue or achieve sustained profitability”. The third risk was “The Company faces intense competition.”

Starting with the third risk we know that almost any business competition is expected to become fierce, as only monopolies have large barriers to entry that provide a considerable degree of safety from competitors. All businesses face competition, it is a given fact. Blackberry made a specific mention to the automotive sector highlighting competitors entering business combinations or alliances that would compete with the firm’s business.

I believe that in the automotive industry Blackberry has an economic moat that cannot monetize efficiently yet. In the second quarter fiscal year 2022 results, the firm reported that “BlackBerry has design wins with 24 of the world’s leading 25 Electric Vehicle (EV) automakers.  This has increased from 23 of the top 25 last quarter following an EV win with Daimler.”

BlackBerry QNX and IVY technologies have high expectations to boost revenue growth in the upcoming quarters and years. Is this fact of having design wins with 24 out of 25 leading EN automakers a strong economic moat for Blackberry?

It seems that it is indeed. Nevertheless, even if we accept that the coronavirus crisis has caused severe problems on supply chains and the production of not just EVs but also conventional cars, Blackberry should find a way to make this economic moat bring in revenue. A lot of it. The first two risk factors have proved to be present by harming the revenue growth and profitability.

 Severe Sales Problem That Needs a Fast Solution

The management of Blackberry in its Q2 FY2202 results was pleased that revenue for all businesses beat expectations. A more analytical approach to revenue generated in the first half of FY 2022 and full FY 2021 tells another story.

Blackberry posted a quarter-over-quarter increase in revenue in Q2 2022 for its following business activities: cyber security, and software and services. On the contrary, IoT and licensing, and others posted a revenue decline. The total revenue reported of $175 million was marginally higher than the Q1 FY 2022 revenue of $174 million.

Furthermore, in FY 2022, Blackberry has not been able to report quarterly revenue that was higher year-over-year. Can the Q3 FY 2022 figure to be reported on Dec. 21 be an exception? That would be a very positive trend.

Bottom Line

In Q2 2022, Blackberry reported a widening year-over-year loss of ($144 million) compared to a net loss of ($24 million) in Q2 2021. The improvement in gross margin in Cyber Security which is the key driver of revenue is positive, but not enough to make a meaningful difference. The major problem is the lack of sales growth.

I continue to argue that BB stock is better to be avoided until its financial performance gets improved significantly. It may well be that in 2022 if the automotive industry solves its global chip shortage problem, Blackberry may get a revenue boost supplying its IVY and QNX technologies. The Cyber Security segment has not yet found a way to lead the path to sustainable sales growth.

Until this changes, shareholders in BB stock have strong reasons to be skeptical.

On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.