Can BlackBerry (TSX:BB) Ride the Automotive Wave?

BlackBerry (TSX:BB)(NYSE:BB) is transitioning to the competitive software industry. Can it make a difference this time and beat its rivals in the automotive software solutions space?

| More on:
Question marks in a pile

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

BlackBerry (TSX:BB)(NYSE:BB) stock has declined 35% since March, worrying many investors who have their funds parked in this software firm. The decline has nothing to do with BlackBerry, but rather the bearish sentiment around tech stocks. I will attribute this bearishness to the rise of Dogecoin and Bitcoin as it was largely the tech bulls who moved to crypto. But if you are in a long-term growth stock like BlackBerry, you have to have a broader perspective and look at its future growth potential. In the last earnings call, CEO John Chen stated that the company’s growth potential is in automotive, which is riding the electric vehicle (EVs) wave.

Strategy Analytics expects a significant expansion in vehicles with embedded systems by 2027. Chen is optimistic that BlackBerry’s QNX and IVY platforms are well placed to tap the growth in autonomous vehicles, EVs, and embedded systems in cars.

But the company has to climb mountains to make sure QNX and IVY become the industry standard in the coming years. Only then will these products drive the company’s revenue growth. Now the question is, can BlackBerry ride this automotive wave? 

Is BlackBerry ready to ride the automotive wave?

Just like Google’s Android or Apple’s iOS, BlackBerry’s QNX is an operating system. QNX can be used in medical, automation, automotive, and other fields. In a connected car, the QNX platform supports infotainment, cabin acoustics, advanced driver assistance systems (ADAS), safety-critical systems and cybersecurity. Its cloud platform IVY shares vehicle data insights to help developers build new applications and improve passenger and driver experience. The IVY will share necessary vehicle data with insurance companies, electric charging stations, car maintenance and other related parties, making car maintenance and insurance easy.

This is just the scenario for a single car. Imagine the efficiency and cost savings IVY can bring to a fleet. It will remove the hassle of owning and maintaining a fleet. Amazon Web Services (AWS)  will host BlackBerry’s IVY platform to make it scalable. This crucial vehicle data could transform transportation as a whole.  

As automobiles become more sophisticated with new connected technology and software, the threat of cyber-attack will increase. A connected car is at a higher risk of malware, making the cybersecurity component crucial. This is where BlackBerry’s strength lies.

According to a report by Frost and Sullivan, BlackBerry’s security solutions cover 96% of all cyber threats. Many security-sensitive industries like government, healthcare, and defence use Blackberry’s endpoints security solutions. Its high-end secure solutions give it an edge over competitors, putting it in a level playing field to gain market share. Verified Market Research expects the automotive embedded market to surge at a compound annual growth rate (CAGR) of 7.43% by 2026.

Will the automotive potential materialize into actual growth for BlackBerry?

The next few years are crucial for BlackBerry as it can gain market share during the growth phase. For the company to gain market share, QNX and IVY have to become the industry standard. Sadly, none of its products became an industry standard after the company transitioned to software.

In 2007, new entrants such as Apple iPhone and Android phones kicked BlackBerry out from the smartphone market, where it was a leader. This risk exists even today. New entrants could dislodge BlackBerry even if QNX and IVY manage to become industry standards. Apart from competitors, BB also faces competition from automakers, which are making embedded systems in-house.  

Foolish takeaway

BlackBerry is still transitioning from hardware to a software-as-a-service (SaaS) company. Over the coming years, it will compete in one of the fastest-growing markets and face intense competition. Things can go both ways for the stock. If it succeeds in tapping the automotive market, it will reward investors which show patience with multi-fold growth. But if things don’t pan out in BlackBerry’s favour, the stock could continue to give double-digit growth.

Instead of parking a significant portion of your portfolio in BlackBerry, invest less than 10%. The growth will take another three to five years to materialize. Have patience and hold onto the stock.

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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Puja Tayal has no position in any of the stocks mentioned. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. Tom Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool recommends BlackBerry and BlackBerry and recommends the following options: long January 2022 $1920 calls on Amazon, short March 2023 $130 calls on Apple, short January 2022 $1940 calls on Amazon, and long March 2023 $120 calls on Apple.

More on Tech Stocks

Arrow descending on a graph
Tech Stocks

2 Industries That Saw the Worst Decline Last Month

The TSX has been declining at a sharp angle since the beginning of June. And two industries (crypto and cannabis)…

Read more »

Dividend Stocks

TFSA Investors: Turn $1,000 Into $10,000 in 10 Years

10-fold growth within a decade is rare but not unheard of. You can capture this growth either by predicting a…

Read more »

Growth from coins
Tech Stocks

Got $1,000? Buy These 3 Under-$20 Growth Stocks to Earn Higher Returns

These under-$20 growth stocks can deliver solid returns in the long run.

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Tech Stocks

TFSA Investors: 3 TSX Stocks You’ll Regret Not Buying on the Dip

Among wide range of investments allowed in a TFSA, now is the time to invest in stocks.

Read more »

Tired or stressed businessman sitting on the walkway in panic digital stock market financial background
Tech Stocks

2 Stocks That Lost Over 50% in 2022

The recovery of the TSX’s tech superstar and a promising high-growth stock that lost more than 50% in 2022 is…

Read more »

Man holding magnifying glass over a document
Tech Stocks

Why BlackBerry Stock Looks Way Too Undervalued After Q1 Earnings

BB stock hasn’t seen any appreciation lately, despite its continued progress on the IVY platform and early signs of the…

Read more »

A stock price graph showing declines
Tech Stocks

BlackBerry Q1 Earnings: The Declining Revenue Streak Continues!

Will BB stock break below $6?

Read more »

A bull outlined against a field
Tech Stocks

After the Recent Fall, it’s Time to Turn Bullish on 2 TSX Growth Stocks

With the kind of lows these TSX stocks have seen, the negatives appear to be priced in.

Read more »