BlackBerry (TSX: BB) has been on a “transformative” journey, to say the least. The tech stock pivoted away from its historical roots in mobile devices to become a leader in cybersecurity and Internet of Things (IoT) solutions.
Now, the recent financial results and strategic moves suggest that the company is poised for growth, making it a compelling buy for investors. However, shares continue to trade downwards, currently down 45% in the last year. So, is it a good buy for investors? Or simply, just fairly valued?
Earnings
BlackBerry’s first-quarter fiscal year 2025 results exceeded expectations across multiple metrics. The company reported total revenue of $144 million, with notable growth in its IoT division, which saw an 18% year-over-year increase to $53 million. The Cybersecurity division also performed robustly, generating $85 million in revenue with a 59% gross margin. This performance was driven by increased demand for BlackBerry’s advanced security solutions and its embedded software used in critical systems across various industries.
The company’s outlook for the full fiscal year 2025 is equally promising. BlackBerry projects total revenue between $586 million and $616 million, with expectations to achieve positive cash flow by Q4 FY25. The company is on track to meet its guidance, reflecting confidence in its business strategy and market positioning.
What’s more, BlackBerry’s strategic pivot towards IoT and cybersecurity is yielding dividends. The IoT segment, which includes BlackBerry QNX, is becoming increasingly vital as more industries adopt connected and autonomous technologies. QNX software is already embedded in over 235 million vehicles, providing a stable and growing revenue stream. Moreover, partnerships with key players like ETAS for software-defined vehicles and AMD for robotics technology are expected to drive further growth.
Managing costs
BlackBerry has implemented significant cost-reduction measures, targeting $100 million in annualized net profit improvements. These measures include reducing headcount and streamlining operations, which are expected to result in substantial cost savings. The company has also exited several office locations to optimize its real estate footprint, further contributing to cost efficiency.
These efforts are part of a broader strategy to achieve profitability and positive cash flow. BlackBerry’s management has been transparent about their goals and progress, providing investors with clear milestones and expectations. The focus on improving margins and reducing operational costs underscores the company’s commitment to financial discipline and shareholder value.
Fairly valued?
Despite its positive outlook and strong fundamentals, BlackBerry’s stock remains relatively undervalued compared to its peers. As of now, the company’s market capitalization is approximately $4 billion, and with projected revenues of up to $616 million, the price-to-sales (P/S) ratio stands around 6.5. This is lower than others in the cybersecurity area.
That being said, there are issues. With adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) projected to be between break-even and $10 million, the enterprise value (EV)/EBITDA ratio is quite high. While it could normalize as the company moves towards profitability, it’s currently at -37.7. In short, not great.
Bottom line
BlackBerry is undergoing a successful transformation, with strong financial performance, strategic growth initiatives, and disciplined cost management. The company’s focus on high-growth segments like IoT and cybersecurity, coupled with its solid market position, makes it a compelling investment.
However, its fundamentals fall short. The company will need to continue to improve profitability to attract investors. This will take time, and work. So, investors seeking exposure to these dynamic markets should consider adding BlackBerry stock to their portfolios. With a promising outlook and clear path to profitability, BlackBerry is well-positioned for long-term success.
