BlackBerry (NYSE: BB) reported very strong second-quarter results last week, and BlackBerry stock has multiple, powerful, positive catalysts going forward.
Importantly, the revenue of the company’s BlackBerry Technology Solutions business, which includes its QNX operating system, jumped 29% year-over-year. Even more importantly, the revenue generated by BlackBerry’s enterprise software business rose 11% versus the previous quarter.
Back in June, when BlackBerry reported its Q1 results, concerns about a year-over-year decline in the company’s enterprise software business led to a large drop in BlackBerry stock. So Q2 BlackBerry earnings have allayed a lot of investor concerns in this area.
On BlackBerry’s Q2 earnings conference call, the company’s CEO, John Chen, sounded very optimistic about BlackBerry Radar, which is used by trucking companies to track assets. According to Chen, the solution collects “up to 100 times more data” than competing products and is saving truckers time. Moreover, Radar is “adding new customers, receiving repeat orders,” and its pipelines are growing. Chen added that the company expects the product to generate $100 million of revenue over the next three years. Assuming that the product carries very high margins, it could be a very significant contributor to BlackBerry’s bottom line within a year or two.
And so, it’s clear that trucking companies are extremely satisfied with Radar and that the product has important advantages compared with competing offerings. It would not be surprising if the product is eventually adopted by most trucking companies, becoming a significant revenue generator for BlackBerry and a meaningful positive catalyst for BlackBerry stock over the long term. The product could even eventually be used by other types of companies that have to keep track of many components, such as auto manufacturers and multinational retailers.
In August, BlackBerry unveiled a solution that can “reverse the effects of ransomware if it infiltrates one or more user accounts,” according to PC Magazine.
The solution is included at no extra cost in the company’s Workspaces offering for enterprises. Using the process created by BlackBerry, enterprises can isolate infected users and even infected files and “rewind” them to a point in time before attacks. As a result, businesses don’t have to pay a ransom and they lose very little data. Without such a solution, companies may have to pay a ransom or “rewind” the computers of all of their employees to an earlier point in time. Of course, either alternative would wind up costing enterprises tremendous amounts of money.
Unfortunately, costly ransomware attacks — which afflict many enterprises — have not been all that rare in recent years. Given the increasing prevalence of such attacks, BlackBerry’s solution should make its Workspaces product very popular, significantly boosting its bottom line and BlackBerry stock.
QNX for Automobiles and Healthcare
I’ve written about the tremendous opportunity for BlackBerry’s QNX operating system many times in the past.
And now, QNX is being deployed in other advanced automobile systems. On the conference call, Chen said that the QNX revenue from its deployment in other non-infotainment systems — including Advanced Driver Assistance systems and instrument clusters — rose at a faster rate than QNX revenue from its more established infotainment business.
Moreover, QNX was deployed in the “next-generation digital cockpit” of a Chinese auto manufacturer, the CEO revealed. The fact that QNX is making meaningful inroads in non-autonomous, non-infotainment driving systems and in China — the world’s largest auto market — bodes very well for BlackBerry stock going forward.
Chen noted that QNX is not yet widely used in healthcare, but he said that many healthcare entities are interested in using the operating system. Given the tremendous amount of money that healthcare entities control and the tremendous need they have to safeguard data, the healthcare sector could be quite lucrative for BlackBerry going forward.
Internet of Things Could Be Huge for BB
Last month, BlackBerry launched BlackBerry Spark, which enables enterprises to meet cybersecurity requirements vis-a-vis the Internet of Things. Chen noted that industry analysts think the number of Internet of Things endpoints could jump from around 5 billion last year to 75 billion in 2025.
The coming explosion in the Internet of Things, and the need to protect the many billions of products that will be connected to the Internet, do, as Chen said, provide a “compelling growth opportunity” for BlackBerry.
Valuation of BlackBerry Stock
After removing BlackBerry’s cash reserves of $2.24 billion from the market capitalization of BlackBerry stock, BB stock’s forward price-earnings ratio, based on analysts’ consensus 2019 earnings per share, comes in at about 36.
In the current bull market, that’s not a very high valuation for a company whose software and services business are growing pretty rapidly.
Moreover, BlackBerry ‘s ongoing patent infringement lawsuits against a number of wealthy companies, including Facebook (NASDAQ: FB), gives it many opportunities to increase its cash reserves going forward. It can use the cash it obtains from these lawsuits to buy back BlackBerry stock and/or to fund acquisitions that will be accretive to its earnings and boost its businesses.
Bottom Line on BlackBerry Stock
BlackBerry’s earnings were strong and it has many tremendous opportunities going forward, especially over the longer term. Wall Street is not yet fully appreciating the company’s potential, but as BlackBerry’s software and services businesses rapidly expands and the company reveals more deals and partnerships, it will begin to do so. As a result, BlackBerry stock should rise significantly, sooner rather than later.
As of this writing, Larry Ramer owned shares of BlackBerry stock.