Since reaching a high of $15.82 in 2017, BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) stock has fallen 29% as of close on August 24. An earnings report on June 23 soured investor sentiment as the company missed analyst expectations on revenue and net income. BlackBerry reported sizable growth in profits from the year previous, but this was mainly due to a $940 million settlement reached with QUALCOMM, Inc.
After the earnings beat and the continued promise of turnaround, investors seem to have lost patience with the company. Chief Executive Officer John Chen has worked diligently to promote a renewed reputation as a software company, but it still appears to be a long road to consistent profitability. The stock was hit hard on August 8 when Goldman Sachs Group Inc. lowered its rating and cited concerns of competition from larger companies in software technology.
Should investors give up on the comeback story of the former smartphone giant?
The self-driving technology market is fierce, and production cycles are long
BlackBerry has boasted of its expansion into self-driving car technology, but this is a market that is growing rapidly and is subject to intense competition. It was revealed recently that Apple, Inc. was forced to temper ambitions regarding development of its own autonomous vehicle. The company retreated to focus solely on development of technology, and retention of engineers is a constant battle for the market in Silicon Valley.
Beyond the aggressive and large competition that BlackBerry faces in this avenue, self-driving technology is also unlikely to contribute to profitability until next decade. By then, it is expected to be a $1 billion market.
Working relationship with Canadian and U.S. governments
On July 20, BlackBerry announced that it had won the right to sell technology for phone and text encryption to the United States’s federal government. Cybersecurity is another rapidly growing market, with governments increasingly worried about the damaging potential of cybercrime and cyberwarfare. BlackBerry already supplies encryption technology to 20 other countries around the globe.
Its relationship with the Canadian government also remains strong, as it continues to use BlackBerry’s enterprise mobility management platform on all of its devices, as well as BBM messaging for Protection B classified information. Unfortunately for BlackBerry, the government is moving away from company devices to suit the desires of employees.
Conclusion
BlackBerry is still a bet for investors with patience on a long timeline. Even with intense competition from larger competitors, the company is already a market leader in the advancement of QNX auto — a remarkably secure operating system used across several industries. The company has secured ongoing relationships with automotive manufacturers to integrate the technology in future generations of vehicles.
BlackBerry also announced a partnership with Vuzix, a company that supplies smart glass technology. The smart glass market is expected to see over 15% growth by 2022.
BlackBerry stock has experienced growth of 21% this year, even after the prolonged summer swoon. Investors capable of riding out the volatility could be richly rewarded by sticking with the stock long term.
