Stock Up Sale
Shares of BlackBerry (TSX:BB) have trailed the broader markets by a wide margin in the last five years. While the TSX index has gained over 60% since January 2019 (after adjusting for dividends), BlackBerry stock is down 50% in this period.
While BlackBerry was among the largest smartphone manufacturers in the world at the start of the last decade, it lost market share to Apple, Samsung, and a slew of other companies from China. The Canadian tech company was forced to exit the smartphone market to focus on its high-margin software and services business, a decision that cheered Wall Street.
However, its sales have fallen from US$1 billion in fiscal 2020 (ended in February) to US$656 million in fiscal 2023. In the last four fiscal years, BlackBerry’s operating losses have totalled US$719 million, while its gross margins have been over 70%. It indicates that BlackBerry is spending heavily on customer acquisition but is unable to expand its spending over time.
Currently valued at $2.82 billion by market cap, let’s see if BlackBerry stock can stage a rebound this year.
BlackBerry will spin off its IoT business
Last year, BlackBerry disclosed plans to spin off its Internet of Things (IoT) business, which will be a separate publicly listed entity. BlackBerry expects the spinoff to infuse cash into the company while allowing investors to “evaluate the performance and future potential of BlackBerry’s principal businesses on a standalone basis while allowing each business to pursue its own distinct strategy and capital allocation policy.”
Right now, the IoT segment generates a majority of its sales from QNX, an embedded operating system for automobiles. The segment generated roughly a third of the company’s sales in recent quarters.
During an analyst summit event last May, BlackBerry stated it is bullish on the IoT business, forecasting its sales growth between 18% and 22% in the next three years, much higher than the growth rates for its cybersecurity business.
BlackBerry emphasized it expects the automotive market to stabilize as the macro environment improves this year. Moreover, it is optimistic about the success of IVY- a cloud-connected artificial intelligence-powered automotive product developed in partnership with Amazon Web Services.
It’s evident that the IoT business may be successful as a standalone company, given its impressive growth forecasts in the near term.
BlackBerry disappoints investors in Q3
In the third quarter (Q3) of fiscal 2024, BlackBerry reported sales of US$175 million, an increase of just 3% year over year. It also reported adjusted earnings of US$0.01 per share. Comparatively, analysts forecast sales at US$181 million and expected the company to report a loss of US$0.02 per share in Q3.
BlackBerry’s cybersecurity segment grew sales by 8% to US$114 million, while revenue for the IoT business increased 8% to US$55 million. This growth was offset by a 50% decline in the licensing business.
BlackBerry’s cybersecurity business ended Q3 with annual recurring revenue of US$273 million, down from US$279 million in the year-ago quarter. Its dollar-based net retention rate stood at 82%, which meant customers reduced spending by 18% in the last 12 months.
BlackBerry’s cybersecurity business is growing at a far lower pace compared to its peers, which suggests it is losing market share. While the TSX tech stock trades at a massive discount to consensus price target estimates, BlackBerry remains a high-risk investment due to its less-than-impressive growth rates.
