BlackBerry Has Evolved Into a Compelling Cybersecurity Investment

It’s funny to think about how BlackBerry (NYSE:BB) was once a leader in the smartphone manufacturing industry. That was at least a decade ago, and today BB stock has little to no correlation to the smartphone market.

A BlackBerry (BB) sign out front of a corporate office in Silicon Valley, California.
Source: Shutterstock

Unfortunately, this means that those who invested in BlackBerry from 2008 and 2009 have lost money. BB stock has been re-rated much lower since then, and there was a period when BlackBerry struggled to find its footing.

Thankfully, the company has evolved and completely transformed itself. And, interestingly enough, it seems that Reddit users discovered BB stock in 2021, and briefly pushed the share price to fresh short-term highs.

For informed investors, however, the long-term outlook isn’t about Reddit-fueled short squeezes. Rather, it’s about the new BlackBerry replacing the old BlackBerry and working toward profitability as a business in the 2020’s, when cybersecurity is of paramount importance.

A Closer Look at BB Stock

Now, I can’t prove definitively that Reddit users turned BB stock into a meme stock earlier this year. However, there’s really no other plausible explanation for what happened to the share price.

At the beginning of 2021, BlackBerry shares traded at $6 and change. All of a sudden, however, the price shot up to $28.77 in late January. There was no news catalyst to justify a price move of that magnitude. So apparently, BB stock was now a meme stock—but only temporarily. The stock crashed back to $8 by May, thereby demonstrating that meme-worthiness isn’t something that investors can rely on for long-term returns.

There was another share-price rally in June, to the $16 level. However, that run-up was short-lived as well.

Fast-forward to Oct. 22, and BB stock was trading slightly above $11. At the same time, BlackBerry had trailing 12-month earnings per share of -$1.15. Yes, that’s negative, but not horrendous if the stock is close to $11. Investors should consider whether BlackBerry could achieve a positive earnings status, so let’s delve into the company’s financials now.

BlackBerry’s Bottom-Line Challenge

So, I’ll start with the bad news first. During the second quarter of 2021, BlackBerry posted a net earnings loss of $144 million.

On the other hand, the company generated $175 million in revenues during that quarter, beating the Wall Street analyst consensus estimate of of $166.8 million.

Clearly, BlackBerry’s challenge is converting its revenues into a better bottom-line result. This may be possible if the company focuses on its burgeoning cybersecurity business. Impressively, BlackBerry’s cybersecurity revenue for the second quarter was $120 million, with gross margin of 59%.

Another positive point is that BlackBerry had total cash, cash equivalents, and short-term and long-term investments of $772 million at the end of Q2.

Becoming a Cybersecurity Contender

So, the company appears to be in a solid capital position. Still, the stakeholders should keep an eye on BlackBerry’s net earnings results in upcoming quarters, and hope for improvement in that area. Again, the company’s cybersecurity business will be crucial as BlackBerry strives for profitability. Therefore, a recent news item should provide encouragement to the company’s shareholders.

Specifically, BlackBerry is partnering with Okta (NASDAQ:OKTA), Mimecast, Stellar Cyber and XM Cyber to advance its extended detection and response (XDR) ecosystem. Delivered via the cloud, BlackBerry’s XDR provides security products and modules focused on threat prevention, detection and response.

Okta is a well-known and respected cybersecurity company and should be an ideal partner as BlackBerry develops its business interests in this high-conviction market. “To address the growing number and severity of cyberthreats, BlackBerry is expanding its XDR partner ecosystem to work with industry leaders and meet the demands of today’s workplace,” said BlackBerry Executive Vice President of Product Engineering Billy Ho.

The Bottom Line for BB Stock

Today’s BlackBerry is quite different from the company of the early 2000’s.

The BB stock price is also different. The 2020’s will involve more modest goals for both the company and the shareholders.

Looking ahead, profitability should be BlackBerry’s top objective. Becoming a major player in the cybersecurity market will, hopefully, help the company to improve its bottom-line results.

On the date of publication, David Moadel 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 Publishing Guidelines.

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