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Why BlackBerry Ltd. Is Still a Good Buy

Last week BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) reported first-quarter results for fiscal 2018 that failed to meet analyst expectations and ultimately sent the stock on a downward ride of over 10%.

While missing on estimates is no matter to ignore, BlackBerry’s latest miss pales in comparison to the previous earnings misses by the company for a few very important reasons.

Q1 2018 results: How bad were they?

In the most recent quarter, BlackBerry posted non-GAAP revenue of US$244 million with the software and services segment accounting for US$169 million and over 3,000 enterprise customer orders noted in the quarter. BlackBerry managed to finish the quarter with non-GAAP earnings per share of $0.02, bettering the breakeven point reported last year.

Analysts had been calling for BlackBerry to report higher revenues of US$265 million. Critics of the stock are also quick to note that the all-important services segment contributed only US$169 million to the bottom line, bettering last year by a paltry US$3 million.

BlackBerry finished the quarter with US$2.6 billion on hand, representing an increase of US$855 million.

QNX is not what it will be in a few years from now

QNX is the operating system BlackBerry has been backing to become a key part of the emerging autonomous car market. QNX is already installed in over 50 million vehicles worldwide across dozens of automotive manufacturers.

Analysts and critics alike know the potential of QNX but often question if that potential is as significant as BlackBerry makes it out to be. This concern is based on the fact that BlackBerry has yet to report any significant increase from the QNX segment.

Autonomous driving is seen as the next major evolution for the automotive industry. While BlackBerry is in an advantageous position over many of the other competitors in this field, there is still work to be done before that segment will produce results that can be outlined in the quarterly report.

In other words, BlackBerry (and other companies working on autonomous driving) is still very much in an R&D phase, but when autonomous driving finally comes to fruition, it will be a huge revenue driver for the company.

BlackBerry Radar is simple, yet revolutionary

BlackBerry has another mainstay product called Radar that is geared toward another emerging trend: the Internet of Things (IoT). Radar is a tracking device that, when attached to a truck, can monitor location as well as anything from temperature, humidity, speed, and even when doors are locked and unlocked.

From an earnings standpoint, radar is unique in that it offers both a one-time and recurring revenue charge for the company. Customers purchase the unit and then subscribe to a monthly service, which provides a revenue stream for BlackBerry. Several large companies have already signed up for the service which was introduced earlier this year.

Critics of BlackBerry point to the lack of significant revenue being generated from this segment and the possibility it may take considerable time for the potential to translate into earnings. While there is some merit to this argument, there’s no denying the potential that the Radar product has in the market.

Is BlackBerry a good investment?

BlackBerry has done a tremendous job at its turnaround, which has taken several years and cost the company considerably in terms of lost talent, market share, and revenue. The transition of the company to a software-first operation is all but complete. The BlackBerry we see now is very different from the BlackBerry of old, which is something that many critics often overlook.

The potential for BlackBerry in both the connected auto and IoT space is immense, but these aren’t the only areas the company is investing in. Advancements in cyber security as well as the long-time core enterprise business will continue to provide revenue for the company in the short term until such time as the next generation of products come to light.

In my opinion, BlackBerry remains an intriguing investment option for investors looking to purchase a tech stock with a lot of long-term potential at a discounted price.

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Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

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