Shares of Canadian tech company BlackBerry (TSX:BB)(NYSE:BB) have taken investors on a roller-coaster ride in the past decade. BB stock fell from a record high of $242 in July 2007 to $6.25 a share in September 2012. The company, which once was a leading mobile device manufacturer, faced competition from tech giants such as Apple and Samsung as well as from several emerging players arising out of China.
BlackBerry was forced to exit the smartphone market a few years back, and the company decided to pivot towards providing enterprise-based software and security solutions. However, investors are patiently waiting for a turnaround in BlackBerry stock, but the company has consistently failed to deliver on its promises.
Despite being part of several growth markets, BlackBerry sales have declined from US$932 million in fiscal 2018 to US$893 million in fiscal 2021. Analysts expect sales to fall by 15% to US$781.5 million in 2022 and increase by 24.6% to US$974 million in 2023.
BlackBerry stock has gained 56% year to date
While BlackBerry stock is up over 50% in CY 2021, investors should note that these gains have been fueled on the back of multiple short squeezes orchestrated by a group of retail traders on social media platform Reddit. This makes BB stock vulnerable in case of a broader market selloff if markets turn turbulent.
In the first quarter of fiscal 2022 ended in May, BlackBerry’s sales were down 15.5% year over year at US$174 million. Sales from its cybersecurity business also fell by 10% to US$107 million, and this is a worrying factor for long-term investors. BlackBerry aimed to gain massive traction in the rapidly growing cybersecurity vertical after it acquired Cylance two years back.
However, it seems BlackBerry is losing market share in a segment that is expanding at an enviable pace. For example, CrowdStrike, which also provides endpoint protection solutions to enterprises, saw its sales rise by a stellar 70% year over year to US$302.8 million in its most recent quarter.
IoT and QNX key for BB stock
The weakness in cybersecurity sales was offset by a strong performance in BlackBerry’s IoT (internet of things) business that includes QNX, which is an embedded operating system. In Q1, IoT sales were up 48.3% year over year at $43 million due to the deployment of QNX in vehicles. According to a report from Strategy Analytics, QNX has been embedded in 195 million vehicles.
BlackBerry recently disclosed a partnership with Amazon Web Services to create and launch IVY, another software platform, which will exchange and manage vehicle data in a secure environment. IVY is expected to launch in early 2022; it will allow automobile players to reduce costs and monetize additional services.
Cybersecurity sales accounted for 61.5% of total revenue in Q1, and BlackBerry should focus on improving this vertical significantly to regain investor confidence. BlackBerry continues to post an operating loss that stood at US$98 million in fiscal 2021, which was narrower than a loss of US$183 million in 2020.
BlackBerry stock is valued at a market cap of $6.22 billion, which suggests its forward price-to-fiscal-2022-sales multiple is eight, which is extremely steep for a company grappling with falling sales and negative profit margins. Investors should be wary of BlackBerry stock right now.
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. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, and CrowdStrike Holdings, Inc. The Motley Fool recommends BlackBerry and recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple.