I’m becoming more intrigued by BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY). The former manufacturer of smartphones officially turned into a software-only company last fall as part of a massive, multi-year turnaround. The decision to abandon hardware was controversial, but not entirely unexpected, especially given CEO John Chen’s remarks regarding the future of the hardware division one year earlier. In jettisoning the hardware division, BlackBerry managed to keep a lineage to devices, negotiating licensing deals with partner companies to allow for the manufacturing and selling of smartphones bearing the BlackBerry name; BlackBerry will receive royalties. While this is impressive, it’s not the reason I’m…
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I’m becoming more intrigued by BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY).
The former manufacturer of smartphones officially turned into a software-only company last fall as part of a massive, multi-year turnaround.
The decision to abandon hardware was controversial, but not entirely unexpected, especially given CEO John Chen’s remarks regarding the future of the hardware division one year earlier.
In jettisoning the hardware division, BlackBerry managed to keep a lineage to devices, negotiating licensing deals with partner companies to allow for the manufacturing and selling of smartphones bearing the BlackBerry name; BlackBerry will receive royalties.
While this is impressive, it’s not the reason I’m bullish on the Waterloo-based company. Here are three reasons investors should consider BlackBerry.
As per the latest quarterly results, software is the new king
BlackBerry’s sweet spot has always been software, and the company’s niche has always been enterprise and security. That was arguably lost during the tenure of Chen’s predecessor; BlackBerry had tried and failed to mount a challenge to the consumer-focused market dominated by iOS and Android. Chen instilled a razor-like focus onto the company around those core principles, and the results are starting to show.
In the most recent quarter, BlackBerry surprised investors and analysts alike with better than expected results. Non-GAAP total revenue for the quarter hit US$297 million, resulting in earnings of US$0.04 per share, bettering the US$0.03 per share loss in the same quarter last year. Adjusted EBITDA for the quarter came in at US$42 million — the 13th consecutive quarter of improvement.
Total software and services revenue for the quarter hit US$193 million, and the company recognized cash flow from operations of US$19 million and free cash flow of US$16 million. Total cash on hand increased in the quarter by US$87 million, bringing the total to US$1.7 billion.
On the enterprise front, the company recognized over 3,500 customer orders in the quarter, contributing to the overall revenue growth of the company. Nearly 80% of the revenue from the software and services segment is recurring revenue.
Overall, most pundits see this as a great quarter for BlackBerry, but given the long turnaround the company has been engaged with over the years, these latest results may be just the beginning of a much-improved BlackBerry. Since those results were released, the stock has already surged over 15%.
BlackBerry’s security niche is going mainstream
Every year, Alphabet Inc. releases an annual report on the state of security within the Android realm. The most recent report praised BlackBerry’s security updates and identified the Priv by name as one of the most secure Android devices ever.
BlackBerry’s emphasis on secure communications is beginning to resonate with users with help from some unexpected sources. BlackBerry was a long-time favourite of President Obama, but now even President Trump has inadvertently helped BlackBerry position itself to new heights.
No, President Trump isn’t yielding a Priv, but a recent executive order signed by President Trump, which effectively rolled back President Obama’s order to restrict ISPs from sharing or selling personal information, has pushed the issue of user privacy and security back into the light.
BlackBerry’s devices have always been positioned as secure, and they will not share customer data, so this latest tidbit of information will come as no surprise to long-time fans of the company, but it will likely result in increased interest from former and potential customers.
BlackBerry is becoming a major player in the connected auto space
Most people don’t realize that when they start their cars and use the infotainment system, they are using a BlackBerry. QNX — the underlying system that runs everything from medical systems to nuclear power plants is powering the infotainment systems of over 50 million vehicles.
As the number of interconnected systems in vehicles increases each year, so too does the need for a central system to manage them. BlackBerry’s presence in this sector has been steadily increasing over the past few years, and QNX is well positioned to become a larger part of the connected auto industry.
BlackBerry has already struck a deal with Ford Motor Company last year; BlackBerry engineers will work directly with Ford teams on future vehicle systems. That partnership could spawn other such agreements with other manufacturers.
Investors may still predominately see BlackBerry as a risky investment, but it’s ultimately less risky than it was a year ago or even a few months ago. Should BlackBerry continue to improve over the next few quarters, the company will prove an intriguing investment opportunity.
Iain Butler, Lead Adviser of Stock Advisor Canada, recommended this little tech darling to thousands of loyal members last March... and those that followed his advice are up 127.7% (they've already made 2X their money!).
Not to mention this tiny Eastern Ontario company has already been recommended by both Motley Fool co-founders, David and Tom Gardner, because of its amazing similarity to an "early stage" Amazon.
Find out why Tom Gardner was recently on BNN's Money Talk raving about this company, and how you can read all about it inside Stock Advisor Canada. Click here to unlock all the details about his Canadian rule breaker!
Fool contributor Demetris Afxentiou owns shares of Ford. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), and Ford. Tom Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). The Motley Fool owns shares of Alphabet (A shares), Alphabet (C shares), and Ford.