Long term investors in BlackBerry (NYSE:BB) stock are seeing solid returns in 2021.
So far this year, BB stock is up over 60%. However, the all-time high of almost $150 seen in June 2008 is far away in the rearview mirror.
For the company, the opportunity to generate any profits from smartphones is long gone. But BlackBerry is working to reinvent itself as a provider of cybersecurity and automotive software. However, investors are divided about when these efforts could start creating long-lasting shareholder value.
Nonetheless, BB stock rallied strongly in late May and early June, fueled by soaring interest from Reddit traders who identified BB stock as a meme play. But the shares have since declined 30%, currently hovering at the $11 territory.
BB stock is undeniably more than a meme name, yet it is poised to remain as a speculative play. The smartphone pioneer is currently on a new course in Internet of Things (IoT) and cybersecurity, two of the most robust segments in today’s digital world. However, investors have yet to see signs of acceptable organic growth. Therefore, investing in BB stock remains a high risk/return play.
How Quarterly Results Came
On June 24, BlackBerry issued first quarter fiscal year 2022 metrics. Revenue declined by 15% from a year ago to $174 million. The company’s cybersecurity revenue struggled to gain traction, coming in at $107 million. On the other hand, I0T software sales soared sharply by 48% to $43 million. BlackBerry reported a net loss of $62 million, or 11 cents per share, reducing the appeal of its turnaround story. The group ended the quarter with almost $770 million of liquidity.
Following the announcement, CEO John Chen remarked,
This quarter we aligned the business around the two key market opportunities – IoT and Cyber Security. In IoT, we are pleased with the strong progress of the auto business, despite global chip shortage headwinds….Tangible progress continues to be made with BlackBerry IVY, including the launch of the IVY Advisory Council and the first investment by the IVY Innovation Fund.
Management sounded optimistic. But Wall Street was not impressed with the results, and many investors hit the sell button. Since the announcement, BB stock is down over 15%. Yet, despite the recent decline, BB stock trades at 7.2x current sales. Put another way, it has a frothy valuation by historical standards.
Emerging Cybersecurity Tailwinds
Despite the decline in Q1 FY22 revenue, BB stock bulls are optimistic about the future. Once known as a leading mobile phone manufacturer, BlackBerry has been working transform itself as a provider of enterprise cybersecurity software and software for electric vehicles (EVs). It now offers endpoint management and protection to businesses, focusing on regulated industries and the government.
Given the recent cybersecurity attacks on various U.S. firms, President Joe Biden’s administration is expected to channel resources to ensuring the online safety for governmental agencies and private businesses. As BlackBerry provides cybersecurity solutions to the U.S. government, it could easily benefit from higher spending levels.
Blackberry is also enhancing the capabilities of Spark, its enterprise cybersecurity software. According to Grand View Research, the global cybersecurity market was valued at $167.13 billion in 2020. And that’s expected to grow with a compound annual growth rate of 10.9% through 2028.
Such increased spending should contribute significantly to Spark’s bottom line. Moreover, the company has launched BlackBerry Gateway, a cloud-based product for remote workers. The platform should be popular with business customers as more companies settle into a remote or a hybrid workforce.
The Vehicle Applications Platform
Blackberry has also gained a considerable foothold in the automotive industry with its QNX vehicle applications platform. The software is in more than 195 million vehicles, up 20 million from the prior year. Management expects QNX royalty revenue to surge fueled by increasing safety-focused software in vehicles, as well as the overall transition to electric and autonomous vehicles.
For instance, car manufacturer Volvo (OTCMKTS:VLVLY) selected QNX software for the 300,000 commercial trucks it has on the road. Positive customer experience with the software could also carry QNX into Volvo’s consumer cars division in the coming quarters.
BlackBerry and Amazon‘s (NASDAQ:AMZN) AWS have also joined forces to develop BlackBerry IVY, a cloud-connected software platform that allows automakers to create a personalized driver and passenger experience. Market analysts highlight the platform’s significant revenue potential as a game-changer for BlackBerry.
Finally, Blackberry plans to sell a high number of its patents to Facebook (NYSE:FB) for a deal potentially worth more than initial market expectations. In such a case, we could expect BB stock to benefit from the development.
The Bottom Line on BB Stock
BlackBerry continues to face revenue and cash flow challenges in the near term. Yet the company is more than just a meme stock play. Its cybersecurity business, QNX software, and BlackBerry Ivy offer considerable growth potential.
BB stock may therefore appeal to growth investors with a long-term time horizon. However, we can expect volatility to continue in the foreseeable future.
Interested readers might find better value around $10, or even below. Other investors could also consider buying an exchange-traded fund (ETF) that holds BB stock as a holding, too. Examples would include the First Trust Nasdaq Artificial Intelligence and Robotics ETF (NASDAQ:ROBT) and the SPDR S&P Kensho Future Security ETF (NYSEARCA:FITE).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
