Market analysts expect 2024 to be the year artificial intelligence (AI) revolutionizes and transforms various industries. Tech stocks with data platforms supporting analytics and generative AI could benefit from this trend and break out this year.
Canada has several AI stocks that could soon be as prominent as their U.S. counterparts. The government’s commitment to support and foster AI innovation will help companies like Constellation Software, Open Text, and Kinaxis gain recognition and attract growth investors.
BlackBerry (TSX:BB) had an early advantage when it acquired AI-based cybersecurity firm, Cylance, in early 2019 for US$1.4 billion. Unfortunately, it didn’t boost the tech stock. At $4.35 per share, the overall return in 5 years is -55.02%. AI-related tailwinds are strong but steer clear of BlackBerry.
The mighty fall
BlackBerry flew high as the pioneer in hand-held devices or smartphones. Believe it or not, the share price rose to as high as $149.90 in mid-2008. However, it crashed with the arrival of Androids and iPhones. The mobile business lost to competition, causing BlackBerry to lose half its market value.
Management gave up the smartphone business and transitioned to a cybersecurity enterprise software and services company in 2016. John Chen joined BlackBerry as CEO and reinvented BlackBerry as a cybersecurity software and services firm.
Part of his task was to restore the company’s financial health and introduce strategies for long-term growth. Chen stepped down as CEO and retired effective November 4, 2023.
Financial performance
BlackBerry was in the red in two of the last three fiscal years. The $2.6 billion company reported US$12 million net income in fiscal 2022 and losses of US$734 million and US$1.1 billion in fiscal 2023 and fiscal 2021, respectively. Notably, revenue was trending downwards from 2021 to 2023.
In the first three quarters of fiscal 2024 (nine months ending November 30, 2023), revenue increased 34.7% year over year to US$680 million. The net loss was US$79 million compared to -US$239 million in the same period in fiscal 2023. John Giamatteo, President of BlackBerry’s cybersecurity division, was appointed CEO to replace Chen.
Giamatteo said Q3 fiscal 2024 was a strong quarter for the Cybersecurity business. BlackBerry secured large strategic deals with leading government agencies, leading to strong sequential revenue growth and margin expansion. The company will provide a full suite of cybersecurity solutions to the Government of Malaysia and was awarded a new contract by the U.S. Department of Homeland Security.
He adds that establishing the Internet-of-Things (IoT) and Cybersecurity as standalone divisions is ongoing. The board believes this move will unlock shareholder value and facilitate flexible decision-making.
Losing proposition
Chen left BlackBerry without accomplishing the assigned tasks, mainly restoring financial health. Also, it’s uncertain if the strategic decision to fully separate the cybersecurity and IoT businesses will translate to business growth, profitability, and positive cash flow.
Survival is again the issue with BlackBerry in the wake of challenging macro and competitive headwinds. Besides poor fundamentals, management’s lower sales forecast is a deal buster. Some Canadian AI stocks could deliver hefty gains in 2024, but not BlackBerry.
