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BlackBerry: An Emerging Big Data Company
BlackBerry Limited (BB) is an enigma in the investment world, full of great promises, but at the same time, it has disappointed shareholders several times. The company has a huge portfolio of patents and offers several cutting-edge products in cybersecurity, Internet of Things (IoT) and automotive technology. What’s more, shares have risen 32% in the past two sessions after BlackBerry announced that it had sold 90 smartphone technology patents to Huawei as part of its move to the mobile market. But while the BlackBerry oozes potential, it also disappoints quarter after quarter. In the most recent quarter, BlackBerry lost revenue and EPS GAAP. Most worrying was the drop in revenue, 20% year on year, and the considerable increase in GAAP operating loss of $ 127 million, up from the $ 29 million loss a year ago. To be fair, some of the performance problems were related to the pandemic, particularly with regard to the automotive sector, where plant closures have resulted in fewer car deliveries and therefore lower QNX licensing rates. However, the company’s revenue has been shrinking for several years before the pandemic. The five-year growth rate, for example, is -20.8%. Transformation of the company The story is not all bad. Glimpses of hope are emerging in what may yet be a multi-year twisting story that began in 2013, the year that John Chen took over BlackBerry’s reign as CEO. At that time, the BlackBerry was a $ 6 billion Titanic, immersed in red paint after hitting an iceberg called the Apple iPhone. After taking over, John Chen began to monetize the company’s patent portfolio and transform the cell phone maker into a much more modest $ 1 billion software company. The transformation took place over several years, with half a dozen acquisitions along the way, including Cylance, Good and AtHoc. These companies were assimilated and worked into BlackBerry’s product flows, but they also resulted in a significant reduction in goodwill, including $ 500 million in early 2020. BlackBerry has at least stabilized its financial situation and now has positive free cash flow and Adjusted EBITDA. That said, the turmoil surrounding the company has affected its stock price and resulted in an attractive valuation. BlackBerry also has some promising technologies that could lead to strong revenue growth in the future. This can be a great time to invest in the BlackBerry. Valuation Metrics The low valuation of the BlackBerry should come as no surprise, considering its past problems. The company has superior metrics in relation to the software industry on several fronts, summarized in the table below. MetricBlackBerryIndustryPrice / Sales Ratio5.8511.31Price / Book Ratio3.0711.44Bross Margin74.2% 70.9% Operating margin-9.2% -23.6% Current Ratio2.271.57Total Debt / Equity0.330.55 Metrics such as price / sales and price / book ratio suggest that What BlackBerry is quite undervalued, with a high probability that the shares will outperform once the company’s future potential is recognized by the market. It is not at all absurd to expect a 2x – 3x increase in the share price from its current level. BlackBerry IVY BlackBerry’s recent announcement of its strategic alliance with Amazon Web Services (AWS) may be enough to kick-start the company’s stock price. The unique partnership provides instant credibility along with a ‘Big Data’ mindset for vehicle data, resulting in unlimited potential for third-party applications in areas such as car insurance, maintenance, EV charging and connected vehicles. The AWS platform offers the BlackBerry IVY cloud connectivity, scalability and global reach. This initiative will provide BlackBerry with a new source of recurring revenue in the automotive market, where it already has software installed on more than 175 million cars. Spark Suite In addition to the BlackBerry IVY, there are several other promising technologies emerging from the BlackBerry, including Spark Suite, which combines Endpoint Management with Endpoint Security, a logical step in the evolution of mobile devices. Spark Suite offers Zero Trust, an emerging concept in cybersecurity that is becoming a necessity for businesses as mobile devices, such as wearables, become the norm in the workplace. In addition to IVY and Spark Suite, BlackBerry has several other more mature product offerings, including QNX, BlackBerry AtHoc and BlackBerry SecuSUITE. While not as exciting as recent BlackBerry initiatives, they do provide a steady and growing revenue stream. According to Wall Street analysts, BlackBerry obtains a consensus from Hold analysts based on 3 Hold ratings. In addition, the average target price of $ 8 places the downside potential at 18.7%. (See the BlackBerry stock analysis at TipRanks) Summary and conclusions The BlackBerry has had a turbulent past, moving from a $ 6 billion hardware company to a $ 1 billion software company in the past seven years. Revenue fell 20% year-over-year in the last quarter, but much of the poor performance can be attributed to the light automotive sector resulting from the pandemic. QNX’s license fees and royalties will increase as the global economy improves. Despite several years of disappointing results, the company has stabilized its financial situation and appears to be in a position to capitalize on several cutting-edge technology ventures, including its exclusive partnership with AWS and enterprise mobility and security management. Given the very low rating, this could be an ideal time to invest in the BlackBerry. Disclaimer: The information contained in this document is for informational purposes only. Nothing in this article should be construed as a request to buy or sell securities.