BlackBerry (NYSE:BB) has been one of the so-called Reddit stocks that have seen big gains. Since the start of the year, BB stock has gone from $7 to a high of $25. During the past week, things have settled down, as the shares now trade at $13. The market capitalization is $7.7 billion.
Before the recent surge, Blackberry treaded water since 2012. Of course, the main reason was that the company lost its hugely valuable smartphone franchise to Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG). It was a classic example of a massive market disruption.
Yet BlackBerry was able to make a major transition of its business. Currently, the focus is on developing security software for IoT (Internet-of-Things).
So what now about BB stock? Could there be more upside or should investors be cautious right now?
The New Company
The CEO of BlackBerry is John Chen, who came on board in 2013. Before this, he led the turnaround at Sybase by focusing on the mobile business and expanding its enterprise footprint. He was able to put together 55 consecutive quarters of profitability and sold the company to SAP (NYSE:SAP) for $5.8 billion in 2010. All in all, investors did quite well.
Keep in mind that Chen has a strong technical background. He graduated Caltech with a master’s in electrical engineering. And when it comes to running tech companies nowadays, having this deep expertise is a big plug.
Despite this, the turnaround efforts at BlackBerry have proved elusive. Then again, the industry is intensely competitive, with many fast-growing operators like Fortinet (NASDAQ:FTNT), Palo Alto Networks (NYSE:PANW) and Splunk (NASDAQ:SPLK). So it is easy to get lost in the noise and get the attention of customers.
Another issue is that Chen has built the security business by making a variety of acquisitions. While this has helped create a good platform, there have been the challenges of integration.
And finally, the IoT segment has not lived up to expectations. Such innovations like self-driving cars and automated manufacturing have been difficult to develop.
The software and services business for BlackBerry is starting to get to scale. Consider that the ARR (Annual Recurring Revenues) are about $475 million and the churn is only about 1%.
As a testament to the strength of the technology, the company has been able to snag contracts with large companies like Citigroup (NYSE:C) as well as government entities, such as the U.S. Army, U.S. Postal Service, The Department of Energy and the IRS (Internal Revenue Service). In fact, BlackBerry has the most certifications by the U.S. government.
BlackBerry has been investing in next-generation technologies like AI (Artificial Intelligence). This has become part of the core of the Cyber Suite, which has been getting traction in the marketplace and validation by third-party research firms. To boost adoption, BlackBerry plans to offer versions of the Cyber Suite for offerings from Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM) and VMware (NYSE:VMS).
Next, the company is positioned nicely in the emerging market for connected autos. There have been 19 wins out of the top 25 for EVs (Electric Vehicles) for the QNX platform, which represents 61% of the market. But the technology has also gotten traction in areas like turbines, rail traffic and next-generation satellites.
Then there is BlackBerry IVY, which is a system to help with analytics for modern cars. To accelerate this, the company has entered an exclusive co-development and co-marketing agreement with AWS.
Bottom Line on BB Stock
Even with the run-up, BB stock is still trading at reasonable levels, at about 7 times revenues. This is especially the case since the product line is focused on secular growth categories like EVs. As the market continues to expand, there will be a need for sophisticated security and analytics—and yes, BlackBerry is in a great position to benefit.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.