BlackBerry (TSX: BB) stock jumped 80% in two months, from November 21, 2024, to January 21, 2025. Was there any big announcement that could justify this jump? There were:
- Rebranding of QNX software
- Sale of Cylance endpoint security business to Arctic Wolf
- Better-than-expected third-quarter earnings
Analysts upgraded their price target on BlackBerry to US$3.5-$4. Note that BlackBerry stock trades on both NYSE and TSX. The price target is for the stock trading on the NYSE, and it has already surpassed the target with an 80% jump.
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Is BlackBerry stock’s 80% jump a sign of a short sale?
However, an 80% jump in two months, with just one to two days of high trading volumes, hints at a short sale. BlackBerry stock saw a 7.1% increase in short interest between December 15 and 30. Around 5.1% of BlackBerry’s shares are short-sold. The stock price has ballooned to $5.89, probably because of the short sale interest.
If you purchased the stock below $4, now is a good time to sell it rather than wait for the turnaround. And if you have been holding the stock since January 2021, with a short-sale peak of $17.86, it is better to sell the stock and cut your losses.
Why am I bearish on BlackBerry stock?
I have turned bearish on Blackberry stock as the new management has not yet generated revenue growth. Although the company did report positive free cash flow and reduced its operating expenses, the company needs a revenue push in a highly competitive market. Having a great product is not enough if people are not buying it. The push towards sales and marketing is important.
Turning to the four points we summarized at the start of the article, let’s analyze their potential to generate revenue.
Rebranding of BlackBerry’s QNX software
BlackBerry’s QNX software is a real-time operating system that powers critical embedded systems. The biggest sector for QNX is automotive. However, the company has been expanding QNX’s application to medical devices, industrial controls, transportation, heavy machinery, and robotics, among others.
The company relaunched the QNX brand to boost recognition and reinforce its leadership within the automotive and general embedded industries. CIBC analysts believe that improved brand recognition could help the company grow credibility. It remains to be seen if it can convert the recognition into hard sales.
If you remember, the company built US$815 million in QNX royalty backlog, almost 3.8 times its FY24 revenue. The company secured product design wins from top automakers. The design stage fetches some revenue. However, the royalty revenue comes when the car with the QNX software is produced and sold.
In the third-quarter earnings presentation, the management gave an estimate of how this $815 million backlog will be realized. Around 33% (US$268 million) is expected to be realized between FY25 and FY27, 39% (US$318 million) between FY28 and FY30, and 28% (US$228 million) beyond 2030.
Even if we consider a 50% realization of the $268 million royalty revenue in FY26, that is a 58% jump from the $230 million in guided revenue from IoT (Internet of Things) for FY25.
Sale of Cylance
BlackBerry is selling its endpoint security business to Arctic Wolf for a cash consideration of US$120 million, of which US$80 million will be paid immediately and approximately US$40 million a year following the closing. This offloading will remove approximately US$90 million from annual revenue and $93 million from operating expenses. This could help BlackBerry focus on profitable businesses and improve profitability.
Better-than-expected earnings
BlackBerry’s third-quarter revenue of $162 million surpassed analysts’ expectations of $146.68 million. However, its FY25 revenue guidance of US$517-526 million fell short of estimates.
The 80% rally has valued BlackBerry stock at 3.8 times its sales per share. If BlackBerry maintains its annual revenue of US$687 million, it will take 3.8 years to return $5.89 in sales per share. If the QNX royalty backlog does not materialize, BlackBerry stock could fall again.
Should you buy or sell BlackBerry stock?
While BlackBerry’s cash flow is improving, it is too early to buy the stock unless there is visible revenue growth. You could consider buying Bombardier, which is enjoying revenue growth.
