Is BlackBerry stock a buy?

In June 2008, Blackberry (BB 3.97%) — then known as Research in Motion — saw its stock hit a record high of $147.55, while its market capitalization hit $83.3 billion. It was the largest smartphone maker in the world, and its business was firing on all cylinders.

Today, BlackBerry stock trades at around $2.50 per share, with a market cap of $1.5 billion. It lost more than 98% of its value because it lost the smartphone market AppleHis iPhones and AlphabetGoogle Android devices.

Image source: Getty Images.

It stopped making its own smartphones in 2016 and tried to expand its software and licensing divisions, but those efforts failed to revive its stock. BlackBerry is still struggling, but could it be a good comeback play for contrarian investors?

How does BlackBerry make money?

BlackBerry now divides its business into three segments: Cyber ​​Security, Internet of Things (IoT) and Licensing. Its cybersecurity business, which generated 60% of its revenue in its most recent quarter, is home to Cylance (which it acquired for $1.4 billion in 2019) and its other endpoint security services. Its IoT segment, which accounted for 38% of revenue, generates most of its revenue from its QNX integrated operating system for connected vehicles.

Its licensing business, which accounted for the remaining 2 percent of its revenue, shrank significantly after it stopped licensing its brand to third-party smartphone makers in 2020 and sold about 32,000 of its non-core patents last year last.

How fast is BlackBerry growing?

BlackBerry’s revenue fell 9% in fiscal 2023 (which ended in February 2023) and rose 30% in fiscal 2024. However, its growth in fiscal 2024 was significantly inflated by a large one-time payment in cash in the first quarter of its sale. non-core patents. So, to get a clearer picture of BlackBerry’s business, we should focus on the growth of its cybersecurity and IoT businesses.

Data source: BlackBerry. YOY = Year Over Year.

BlackBerry’s cybersecurity business has struggled as headwinds have led many companies to rein in spending. It also faced stiff competition from larger endpoint security companies such as CrowdStrike and Palo Alto Networks. However, the closely watched business finally grew sequentially and year-over-year in the second quarter as it expanded its government work to offset slower growth in the commercial market.

The IoT business, which previously struggled with sluggish growth in the automotive market and delays for new QNX-based projects, also grew sequentially and year-over-year in the second quarter as the industry stabilized.

What’s next for BlackBerry?

For the third quarter, BlackBerry expects to generate cybersecurity revenue of $86 million to $90 million and IoT revenue of $56 million to $60 million. In other words, the cybersecurity business could continue to struggle as its IoT business gradually expands.

For the full year, analysts expect its total revenue to fall 29% to $603 million as it wraps up its patent sale. Analysts also expect BlackBerry’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to fall from $57 million in fiscal 2024 to $0-10 million in fiscal 2025. Based on these estimates and of the $1.5 billion company value, BlackBerry still doesn’t. It doesn’t look like a flashy deal at 2.5 times this year’s sales and more than 300 times this year’s adjusted EBITDA midpoint.

But from fiscal 2024 to fiscal 2027, analysts expect BlackBerry’s revenue to grow at a compound annual growth rate (CAGR) of 41% as adjusted EBITDA grows at a CAGR of 6%. We should take these estimates with a grain of salt, but this growth could be driven by the stabilization of its cybersecurity business, the expansion of its in-vehicle cybersecurity services, and new QNX projects such as its IVY collaboration with Amazon Web Services (AWS).

Is it the right time to buy BlackBerry?

BlackBerry isn’t in the reckoning yet, but I think consensus expectations are still too bullish. It still faces macro and competitive headwinds in the crowded cybersecurity sector, and likely can’t scale QNX fast enough to offset that pressure. So for now, I’d avoid BlackBerry stock and buy more promising cybersecurity or IoT stocks instead.