BlackBerry Ltd. (TSX:BB)(NYSE:BB) and Shopify Inc (TSX:SHOP)(NYSE:SHOP) are both multi-billion dollar tech companies chasing huge opportunities. Evangelists for each company think there’s clear multi-bagger opportunity for shares. Sorting out the truth from fiction, however, is key to taking advantage.
There’s certainly a bull case to be made for each company, but one is plagued by over-valuation concerns, while the other faces steep hurdles to growth. But if the bulls are right, there really could be massive upside for both stocks. Let’s find out how much you could earn and which company you should trust.
Going for gold
You might remember BlackBerry as a failed smartphone manufacturer. At one point, it controlled nearly half the market. By 2016, it was down to a 1% market share. Around that time, management opted to undergo a complete transformation in its business model.
Just this year, the transformation was completed. Today, BlackBerry no longer sells smartphones. It’s now focused on next-gen opportunities like cybersecurity, healthcare analytics, and self-driving cars. Instead of pushing hardware, BlackBerry is all-in on software.
Earlier this year, Blackberry closed its $1.8 billion acquisition of Cylance, which uses artificial intelligence to protect tech applications from attack. Cyclance already has thousands of customers, including a big chunk of Fortune 500 companies. Integrating its offerings with BlackBerry’s infrastructure and brand should make quite the combo, but BlackBerry still needs to prove that it can grow organically.
Minus the boost of Cylance’s revenues, BlackBerry grew sales by single-digit rates this year. That’s hardly the mark of a company targeting huge growth opportunities like autonomous driving and the internet-of-things. BlackBerry may end up as a home run bet, but it’s still a shot in the dark. Its success depends on dozens of factors, including growth in its underlying markets, strength of its technology, and uptake by the industry. Shopify, meanwhile, has already cleared those hurdles with gusto.
If BlackBerry is going for gold, Shopify has already found it. Over the last several years, revenue growth has averaged around 50% per year. Since its IPO in 2015, shares are up more than 1,000%. Nearly every quarter, Shopify gains new market share in the rapidly-growing e-commerce industry. That’s because Shopify has developed best-in-class technology that has clearly achieved platform status.
I recently wrote about the power of tech platforms when searching for the next Microsoft. “The term comes from analyzing physical infrastructure,” I wrote. “You can build huge and complex things on top of platforms, but if you take away the platform, everything that was built on top of it can no longer exist.”
Building a tech platform uses the same logic. If a customer wants to switch away from your platform, they’ll incur steep damage to their business and operations. For example, when building a Shopify store, you can easily integrate mission-critical tools like payment processing, marketing campaigns, data analytics, inventory management, customer service, and much more. These tools are Shopify’s entire value proposition, so nearly every store hosted on its platform takes advantage of them.
But what if a customer wants to leave the Shopify platform? It would instantly lose all the aforementioned tools. Each is mission-critical, and losing just a few would likely render the customer’s business useless. It doesn’t matter if a competitor has slightly better pricing or capabilities, Shopify customers essentially can’t switch.
Shopify has already found the magic bullet for hyper-growth. BlackBerry, meanwhile, is still searching for its golden goose. Shopify stock is much more expensive at 25 times sales, but you get what you pay for. Over the next five years, revenue should easily surpass 30% annual growth.
Shares are pricey, but it’s not hard to justify a $100 billion market cap over the long run. That represents more than 100% potential upside. BlackBerry has similar upside, but the path forward is much more difficult. Ideally, you’d find the next Shopify, but the current Shopify still has plenty of room to run.