BlackBerry (NYSE:BB) stock got off to a big-time start to the new year. Of course, the main reason was that it got caught up in the Reddit frenzy, which impacted a wide-array of neglected stocks like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC).
Consider that BB stock went from $6.70 to a high of $28, which was a point that had not been reached since the summer of 2011!
But things have since calmed down. During the past couple weeks, there has been a major sell-off in the markets. As a result, BB stock is now at less than $11, putting the market capitalization at $6 billion.
BlackBerry is a much different company nowadays. It has transformed itself into a cybersecurity operator. Although, the process has not been particularly easy. The company has needed a major restructuring and there have been challenges along the way.
Yet it does look like the strategy is starting to show results. If anything, BB stock looks like an interesting play at current levels.
So, let’s take a look at three reasons why:
It’s true that the top line for BlackBerry remained under pressure. But there are silver linings. Keep in mind that the company has been able to get the annual recurring revenues (AAR) to $475 million and the dollar-based net retention rate is about 90%, with the churn at only 1%.
But given the growth opportunities in the various target markets, BlackBerry should be able to produce increases in revenues in the coming years. The innovation pipeline is definitely impressive.
In the meantime, BlackBerry has been disciplined with its cost structure as well as with the balance sheet. For example, the non-GAAP gross margins are at 70% and the debt load has been declining. The company is also fairly liquid, with the cash in the bank at $757 million.
Market Opportunity for BB Stock
No doubt, the cybersecurity market is enormous – and growing. According to research from Statista, cybersecurity spending in the U.S. is forecasted to go from $184.2 billion to $248.3 billion by 2023.
The reality is that the cybersecurity threats are getting more sophisticated and dangerous. Just look at the breach of SolarWinds (NYSE:SWI), which resulted in the penetration of systems of the U.S. government and various large corporations.
BlackBerry is positioned to be a strong player in the market. For example, the company has more U.S.-based security certifications than any other software vendor. Some include FedRAMP and FIPS 140-2. Thus, BlackBerry has the credibility and background to be competitive in snagging new contract wins.
But the company is looking for growth outside of cybersecurity market. Note that it has a long history with developing technologies for cars. So, this should allow the company to benefit from the megatrend of connected cars.
Innovative Product Line
The BlackBerry Cyber Suite launched recently and there has been considerable adoption. Then again, the system leverages sophisticated artificial intelligence to enhance security for authentication and mobile devices.
The Cyber Suite also has the benefit of deep integrations, such as with Microsoft (NASDAQ:MSFT), VMware (NYSE:VMW) and IBM (NYSE:IBM). Consider that third-party IT research organizations, such as 451 Research, have given the technology high marks.
Next, BlackBerry has built Ivy, which should be a winner. It is focused on connected cars and allows for the real-time analysis of the huge amounts of data generated. This means that auto manufacturers will get much more insight, say for use of AI.
As a testament to the potential of this technology, BlackBerry has entered a multi-year exclusive co-development and co-marketing deal with Amazon’s (NASDAQ:AMZN) AWS. Such an arraignment is quite rare – and more importantly, it should be a strong source for secular growth.
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.