BlackBerry (TSX:BB) stock fell more than 55% last year, as tech stocks faced a selloff from the bubble burst. BlackBerry’s cybersecurity revenue continued to fall throughout the year while its Internet of Things (IoT) business remained steady. Overall, it has been a tepid year for a growth stock like BlackBerry.
Weak revenues and challenging macro environments halved the wealth of BlackBerry investors like Prem Watsa. Things are looking slightly bright for growth stocks in the second half of 2023, provided the worst of inflation, interest rate hikes, and the resulting recession is over in the first half.
Could BlackBerry stock be a winner in 2023?
For BlackBerry stock to become a winner, its current top line has to grow rapidly. The company is in the business of software for IoT and cybersecurity services. Three events could drive BlackBerry stock up 70-80% in 2023.
| Quarter | BlackBerry’s Revenue | IoT Segment Revenue | Cybersecurity Revenue |
| Q1 2022 | $174 | $43 | $107 |
| Q2 2022 | $175 | $40 | $120 |
| Q3 2022 | $184 | $43 | $128 |
| Q4 2022 | $185 | $52 | $122 |
| Q1 2023 | $168 | $51 | $113 |
| Q2 2023 | $168 | $51 | $111 |
| Q3 2023 | $169 | $51 | $106 |
| Q4 2023* | $207 | $51 | $121 |
Increase in recurring revenue from the cybersecurity business
BlackBerry’s cybersecurity segment earns its revenue from government contracts that are stable and renewed annually. In the November 30, 2022, quarter, BlackBerry saw a longer sales cycle but no pullback in the government’s cyber investment. BlackBerry’s cybersecurity revenue fell due to delays in contract signing and a weak retention rate of 84% from 95% in the previous year’s quarter.
BlackBerry chief executive officer John Chen remains bearish for the first half of the year, as macro headwinds could delay contracts, and some customers might push out. But he expects renewal rates to increase in the second half.
As the cybersecurity business accounts for over 60% of BlackBerry’s revenue, the segment’s recovery could drive the company’s stock in the latter half of 2023. The segment is also tapping the financial and industrial verticals and expects to increase its revenue at a compound annual growth rate (CAGR) of 10% by 2027. If the company succeeds in achieving its target, you could see the stock price grow strong by double digits.
Unlocking royalty revenue backlog from automotive
BlackBerry is eyeing the automotive industry for growth, as it secures several design wins for its QNX software. It earns 40% of its revenue from developer seats, 40% from royalties when the vehicle is in production, and 20% from services. Last year, automotive production fell due to chip supply constraints, pushing a significant amount of BlackBerry revenue to the backlog.
However, its design wins have been strong, keeping the revenue stable through 2022. Assuming automakers don’t cancel new car launches, BlackBerry could realize $560 million in royalty revenue (three times its annual IoT revenue) when car production returns.
BlackBerry is expanding its QNX ecosystem on Amazon Web Services to increase its market reach. Moreover, it is enhancing its IVY platform for secure Vehicle-to-Grid interfaces, which can find its application in smart city infrastructure. While the opportunities are significant, so is competition. BlackBerry expects the IoT business to deliver a 20% revenue CAGR over the next five years.
BlackBerry stock could be the key beneficiary of the future electric vehicle boom, but you have to wait.
The sale of BlackBerry’s licensing business
A wild card in BlackBerry’s stock price could come from the sale of its patent licensing business for $600 million or more. It has been in talks with Catapult, but the sale got delayed as the buyer took time to accumulate the finances. At the latest earnings call, John Chen stated that they found another buyer, a private equity firm that doesn’t need external funding, and Catapult has also secured the funding.
The parties are negotiating the final documents, which means a sales announcement could come anytime in the next few months. A $600 million cash injection to BlackBerry’s $505 million cash reserves could boost the share price.
Final takeaway
Now is a good time to buy BlackBerry stock while it remains undervalued below $6. The above three events could drive the stock up 60-70% as the economy recovers.
