BlackBerry (TSX: BB)(NYSE: BB) had a promising start to 2019. All the way back in January, I’d described the stock as a “steal” after it fell into single-digits during the December market rout. Shares would steadily climb into late March and hit a 52-week high after management projected revenue growth between 23% and 27% for the 2020 fiscal year.
The stock has been going in the opposite direction since the early spring. Shares plunged sharply after its first quarter FY 2020 earnings came in below expectations in late June. Investors saw little improvement when it posted its second-quarter results in September. Worse still, the company narrowed its previous guidance for revenue growth to between 23% and 25%. BlackBerry was flat on an adjusted earnings per share basis, which represented another miss.
Why it’s still worth getting excited about BlackBerry
BlackBerry has carved out a promising footprint with its push into software. It has emerged as one of the most trusted mobile endpoint security providers. The company has chosen to double down on this advantage. One of the ways it is doing this is by betting big on artificial intelligence (AI).
Capgemini, a French consulting and professional services firm, recently released a report on the importance of AI development in the cybersecurity sector. In it, 61% of enterprises say that they cannot detect data breach attempts today without the use of AI technologies. Nearly 50% of enterprises said their budgets for AI cybersecurity would increase by an average of 29% in fiscal year 2020.
In early 2019, BlackBerry completed its $1.4 billion acquisition of Cylance. BlackBerry pursued Cylance for its machine learning and artificial intelligence technology, which management said was a strategic addition to the company’s end-to-end secure communications portfolio. It planned for its embedded AI technology to aid in the development of BlackBerry Spark, the secure communications platform for the Internet of Things (IoT).
CEO John Chen said that its Cylance business surpassed expectations in the second quarter. Non-GAAP revenues at BlackBerry Cylance reached $51 million. The company is still in the process of integrating Cylance into its core business, but progress has been promising so far.
Is BlackBerry a buy in November?
Shares of BlackBerry have rebounded marginally over the past month, climbing 1.5% as of close on November 14. The stock has plunged 26.5% in 2019 so far. BlackBerry stock is still trading close to a 52-week low at the time of this writing.
Investors will have to wait until late December before we get a glimpse at BlackBerry’s next batch of results. This month, the company announced a partnership with a subsidiary of global auto supplier Bosch Group. BlackBerry’s QNX division will work with the new partner to develop a secure software platform for next generation vehicles. The company estimates that its QNX software for infotainment and related systems is already embedded in over 150 million vehicles globally.
BlackBerry offers exposure to AI technologies, as it has established footprints in cybersecurity and the development of automated vehicle software. Both sectors are poised for big growth in the coming years and decades. BlackBerry is going through growing pains in its transition to software, but I love the stock as a long-term pick-up, as it is priced in the single digits.
