2 Reasons to Pick BlackBerry Ltd. Over Cineplex Inc.

Blackberry Ltd. (TSX:BB)(NYSE:BB) is a better target than Cineplex Inc. (TSX:CGX) due to a number of factors.

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BlackBerry Ltd. (TSX:BB)(NYSE:BB) stock has rallied with the broader Canadian stock market in April and May. Shares of BlackBerry were up 9% month-over-month as of close on May 23.

The story has been quite different for Cineplex Inc. (TSX:CGX), however. Shares of Cineplex were down over 20% in 2018 as of close on May 23. In its first-quarter report, Cineplex posted a 9.3% year-over-year drop in attendance and net income plunged 33.7% to $15.2 million. There have been a number of box office hits that are encouraging for the company in 2018 so far, but with cinemas experiencing a troubling decline across the board in recent years, it may not be enough.

BlackBerry was in a dangerous position in the beginning of this decade. It watched competitors surpass its hardware offerings and was forced to reinvent itself. Cineplex and the industry it represents may be facing a similar crisis. Let’s take a look at two reasons why you should buy BlackBerry over Cineplex today.

BlackBerry taking advantage of rising industries

BlackBerry’s switch to software and services has provided it with an opportunity to jump into rising markets. One of those markets is cybersecurity, which has experienced massive growth in recent years and shows no signs of slowing down. BlackBerry has partnered with a number of governments around the world to provide endpoint security, launching its own consulting service in October 2017.

The company is also in a great position to take advantage of the fast-growing autonomous vehicle industry. It has partnered with Baidu Inc. to develop self-driving technology. Autonomous vehicles are expected to start hitting the market by 2021.

Recurring revenue is bolstering BlackBerry and burying Cineplex

In the fiscal 2018 fourth quarter, BlackBerry reported record software and services revenue of $218 million. Approximately 70% of this revenue was recurring. The reliance on recurring revenue was driven the evolution of several key industries, including the video game market. This has also transformed home entertainment, as streaming services like Netflix Inc. present a serious challenge to Cineplex and the business model of traditional filmgoing.

What should be especially concerning for Cineplex is the adoption of streaming services by younger demographics. In a Morning Consult poll conducted in 2017, 67% of millennial respondents said that they currently subscribe to Netflix. A comprehensive report from the CRTC released in 2017 show that this trend is accelerating across all demographics. In the survey, 29% of millennials said they exclusively used streaming services to watch television, and 54% said they used streaming more than traditional cable.

A large and consistent stream of recurring revenue is the envy of any major service business. Cineplex has attempted to reduce its reliance on the box office by adding entertainment options like The Rec Room. Cineplex expects that The Rec Room’s cash-on-cash return to exceed that of its theatres going forward.

Cineplex still offers an attractive annual dividend of $1.74 per share, but the struggles of the stock should steer investors to long-term growth plays like BlackBerry instead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. David Gardner owns shares of Baidu and Netflix. Tom Gardner owns shares of Baidu and Netflix. The Motley Fool owns shares of Baidu, BlackBerry, and Netflix. BlackBerry and Baidu are recommendations of Stock Advisor Canda.

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