Once the world’s leading mobile manufacturer, BlackBerry (TSX:BB)(NYSE:BB) has burnt significant investor wealth over the years. The company was pushed out of the smartphone market by Apple, Samsung, and a string of successful Chinese devices.
BlackBerry exited the smartphone market in late 2016 and pivoted to software and services. The company aimed to leverage its expertise in mobile security application to expand its customer base and portfolio of services. BlackBerry is currently a full-fledged security software and services company.
It provides enterprises and governments with technology to secure the Internet of Things (IoT) and solutions for enabling IoT, including endpoint management & protection, secure communications, alerts & crisis communications, embedded systems, and transport asset tracking. BlackBerry’s professional business offers cybersecurity consulting and enterprise consulting services.
A look at BlackBerry’s whirlwind performance
BlackBerry stock went public back in 1998 just before the dot-com bust. The stock rose from $3.5 in June 1998 to a record high of around $240 by June 2007. It is currently trading at $8.08.
But what if you had bet on BlackBerry successfully staging a turnaround after it pivoted to software and services? A $1,000 investment in BlackBerry stock at the start of 2017 would now be worth $875. BlackBerry continues to underperform the broader markets, while investors patiently wait for an improvement in business prospects.
What’s next for BlackBerry and investors?
BlackBerry is part of a high-growth segment. However, company sales have fallen from US$1.37 billion in fiscal 2017 to US$916 million in fiscal 2019. It acquired cybersecurity company Cylance for US$1.4 billion last year, and this has given a significant boost to the company’s top line. In fiscal 2020, analysts expect BlackBerry sales to rise almost 20% to US$1.1 billion and by 8% to US$1.19 billion in 2021.
BlackBerry is banking on the increasing threat landscape and reliance on IoT devices to drive demand for its robust suite of security solutions. The Cylance acquisition can very well be game-changing, as BlackBerry claims to be the leading independent vendor focused on securing IoT devices.
Another revenue driver for BlackBerry will be its QNX product that provides mission-critical embedded solutions to autonomous vehicles. QNX is installed in 120 million vehicles. The QNX platform is also the world’s first digital cockpit solution, and this technology is now expanding to other industries, such as robotics and healthcare.
BlackBerry has merged its Cylance machine learning security solution with its QNX software for autonomous vehicles, which might help it increase customer base over the next few quarters.
In the fiscal third quarter of 2020, BlackBerry sales rose 18% year over year to US$267 million. The Software and Services sales were up 21% at US$262 million, accounting for the majority of revenue.
BlackBerry has a market cap-to-sales ratio of 3.05 and a forward price-to-earnings multiple of 40.3. It continues to post a GAAP loss but is expected to improve EBITDA from $119 million in 2020 to $171 million in 2021.
While BlackBerry manages to stay afloat, it might be several years before its suite of software solutions propel the stock price higher. The company needs to consistently grow sales and improve profit margins to keep long-term investors interested.
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.
David Gardner owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends BlackBerry and BlackBerry. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.