BlackBerry (TSX:BB) stock jumped 7% to over $4 in the first week of May as the TSX Composite Index surged on hopes of an interest rate cut in June. This stock has kept investors waiting for decades. After years of declining revenue and no profits, there is some hope of a positive cash flow with a new chief executive officer (CEO) at the helm. A newly restructured BlackBerry will have two business segments operating individually.
Long-term bull scenario of BlackBerry
BlackBerry operates in two high-growth segments: the Internet of Things (IoT) and endpoint cybersecurity. Both have a total addressable market of US$32 billion in 2025 and US$52 billion in 2026, respectively.
BlackBerry’s IoT business has QNX Software that helps in asset tracking and operating systems. It also has IVY vehicle communication, giving it an edge in connected devices. These software have been getting design wins. Hence, its QNX royalty backlog increased to US$815 million in fiscal 2024 from US$640 million a year ago.
However, the weak economy stalled automotive demand. With hopes of a recovery in automotive demand, BlackBerry has a chance to unlock the revenue backlog. BlackBerry expects its IoT revenue to grow 9.3% in fiscal 2025. However, it will be a while till the company reports positive earnings per share (EPS).
Going beyond the backlog, the IoT proliferation with the advent of the 5G ecosystem will enhance the need for QNX software. This secular trend will take time to materialize. Many chip and automotive companies see the opportunity and are partnering with BlackBerry for their software needs. Advanced Micro Devices recently partnered with BlackBerry on robotics.
Short-term bear scenario of BlackBerry
While BlackBerry’s IoT growth cycle has begun, it still has a long way to grow its cybersecurity revenue because of strong competition. Moreover, uncertainty in the economic and business environment has made businesses cautious, delaying the signing of cybersecurity contracts. BlackBerry expects its cybersecurity revenue to fall by 3.4% in fiscal 2025.
This short-term bearishness in cybersecurity is keeping BlackBerry stock from growing. However, 5G will also boost demand for endpoint security as companies want to create a safe network for connecting your devices to the internet. This secular trend could lead to long-term growth.
Here’s why it’s not too late to buy BlackBerry stock
Since BlackBerry is a tech stock, it could see remarkable growth once the demand is triggered. BlackBerry’s tech is scalable with little increase in cost. It is only the initial phase that is the challenge. There are no concerns about the company thriving in a downturn. If you are thinking that BlackBerry could walk in Nuvei’s footsteps and go private, it could command a premium price because of its products and patents.
I will not rule out any possibility of an acquisition, but Fairfax Holdings and other active shareholders might not be in favour. They have waited a long time for organic growth and might be willing to see it through.
A business restructuring is not easy, but it is necessary. You can’t carry everything if you are to climb the mountain. You need to streamline, keep what is necessary and leave the excess behind. That’s what BlackBerry is doing. It will make the tech company’s climb smooth and efficient.
BlackBerry’s new CEO is aiming for a positive cash flow by March 2025. Profitability could drive the stock price.
Investor takeaway
You can still buy BB stock at $4 as it is yet to recover from its 20-year low to its normal trading price of $8. This recovery alone could double your money.
