Is BlackBerry Stock a Buy After its Q1 Earnings?

Given its improving financials, long-term growth prospects, and discounted valuation, BlackBerry looks like an excellent buy at these financials.

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BlackBerry (TSX:BB) reported impressive first-quarter earnings for fiscal 2025 last month. Its revenue, adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), and adjusted EPS (earnings per share) beat management’s guidance, thus driving its stock price higher. Since reporting its third-quarter earnings, BlackBerry’s stock price has increased by over 8.5%. Despite the recent increases, it trades at a substantial discount compared to its 52-week high. So, let’s assess whether BlackBerry is a buy at these levels by looking at its first-quarter performances in detail and growth prospects.

BlackBerry’s first-quarter earnings

In the May-ending quarter, BlackBerry posted a revenue of $144 million, which was higher than management’s guidance of $130-$138 million. Strong performances from IoT (Internet of Things) and cybersecurity segments have driven its topline, with both segments beating their guidance.

The increased contributions from royalties and professional services overcame the development seat revenue weakness to drive its IoT revenue. Its gross margins remained strong at 81%. The growing demand for ADAS (advanced driving assistance systems) and digital cockpits has increased its automotive space revenue, forming 80% of its IoT revenue. In the cybersecurity segment, the company made go-to-market changes to its products, which appear to have resonated with its customers, delivering better-than-expected revenue.

Further, the company has continued its cost-cutting initiatives, such as slashing its back-office headcount and facilities, driving its profitability. Amid its topline growth and decline in operating expenses, its adjusted EBITDA came in at a loss of $7 million, better than its guidance of $15-$25 million loss. Meanwhile, its adjusted loss per share stood at $0.03, beating its guidance of $0.04-$0.06. Further, the company has also improved its free cash usage for the third consecutive quarter, which is encouraging. Now, let’s look at its growth prospects.

BlackBerry’s growth prospects

For 2024, analysts are projecting global light vehicle production to remain stable. However, the increase in software-defined vehicles has increased its penetration. Despite the recent pullback in the electric vehicle segment, analysts predict a 27% growth this year.

Meanwhile, BlackBerry is scaling its professional service team to support its customers and their development programs. Its QNS platform supports the digital cockpit, ADAS, chassis, and other applications that run on internal combustion engines and electric vehicles. In the May-ending quarter, it acquired several design wins in the digital cockpit and ADAS segments, including several key players in the automotive industry. Its QNX platform is also expanding its presence in the general embedded market, which could support its growth in the coming years.

In the cybersecurity segment, the company’s new artificial intelligence-powered products have increased customer satisfaction levels, thus boosting renewals in government and financial services segments. So, despite the challenging macro environment, the company’s management has reiterated its guidance for this fiscal. Along with these growth initiatives, the company has made substantial progress in cutting its expenses. So, the management hopes to post positive adjusted EBITDA and cash flows in the fourth quarter of this fiscal. Considering all these factors, I believe the company’s outlook looks healthy.

Investors takeaway

BlackBerry has been under pressure over the last 12 months amid a challenging macro environment and lower-than-expected growth in the IoT segment. Despite the renewed interest in the stock, the company trades 57.8% lower than its 52-week. Its price-to-book and next-12-month price-to-sales multiples have declined to 1.9 and 2.4, respectively. Considering its long-term growth prospects and discounted valuation, I am bullish on BlackBerry.

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.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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