BlackBerry (TSX:BB) stock shocked investors in the last few months, rising 125% between December 2024 and February 2025. However, this rally was short-lived, as the market reacted to something positive in a company that was depleting its cash reserves with constant losses.
BlackBerry’s stock price rally is unsustainable
BlackBerry reported its first-ever operating cash flow in many years in November 2024, which pushed the stock up 47% to $36.95 as of December 26, 2024. The stock held that price in January in hopes of a recovery in the automotive market, as the newly elected U.S. president, Donald Trump, had promised to make cars affordable to Americans.
While things overturned in February with the announcement of U.S. tariffs on Canada and Mexico exports, BlackBerry stock surged another 40% between February 3 and 18. Behind this rally was the completion of the sale of Cylance to Arctic Wolf. At this point, BlackBerry’s management had downsized the business. They only kept profit-generating businesses and offloaded loss-making businesses that needed high research and development (R&D) expenses.
Hence, it comes as no surprise that BlackBerry reported its first net income in a long time of US$2 million in the first quarter ended May 31, 2025. The stock jumped 12.5% after the earnings release on June 24 and has fallen 17.6% since then.
Throughout this journey, BlackBerry stock could not sustain its rally. Why?
BlackBerry’s valuation and growth mismatch
At a share price of $5.42, BlackBerry stock is trading at a price-to-sales ratio of 4.38, which is high for a company whose revenue has been falling. The company is dependent on QNX software to drive growth. Its other business, Secure Communications, continues to see churn rate as customers move to a cloud-based architecture.
How do the next two years play out for QNX?
Although QNX has secured several product wins with automotive customers, the overall automotive sector has been in a downturn after the 2022 semiconductor supply shortage. Car sales failed to pick up, but QNX royalty revenue continued to accumulate. At the end of FY25, the royalty backlog rose to $865 million from $815 million a year ago.
BlackBerry’s management has been waiting with bated breath to unlock this revenue, but it has been dragging on for four years. I have turned bearish on BlackBerry because it was not optimizing its QNX beyond automotive.
In the first quarter, the management stated that it will focus on diversifying QNX to General Embedded Market (GEM) applications, like robotics, industrial automation, and medical devices and equipment. Around 55% of its QNX pipeline in the first quarter of fiscal 2026 is in GEM.
The renewed focus on diversifying in GEM is welcome. However, it is better to adopt a wait-and-see approach to see if the GEM product mix converts into actual revenue or piles up in the backlog.
The only inflection point for BlackBerry will come when the QNX royalty backlog is unlocked.
How do the next two years play out for Secure Communications?
BlackBerry’s Secure Communications segment largely caters to governments, which have a lengthy decision-making process. On one hand, it has been losing business as companies move to the cloud. On the other hand, it secured Unified Endpoint Management deals from a broad spectrum of customers, including the U.S. Special Operations Command, U.S. Air Force, the U.K.’s Sellafield Nuclear Power Establishment and National Grid, the Qatar National Bank, leading U.S. Bank Oppenheimer, and the Netherlands government shared services.
This segment could help BlackBerry generate a minimum cash flow, as new contracts offset churn rate. However, I do not expect any significant growth in this space.
What can investors expect?
BlackBerry operates in a highly competitive market, and its product quality helps it enjoy strong goodwill. Fiscal 2026 will be the first full year of BlackBerry’s downsized core businesses on which it will focus. From this point, investors should closely monitor revenue growth, as it is where future upside will be realized.
I do not expect any more sudden growth triggers in BlackBerry’s share price as the tariff announcement doesn’t directly affect its stock price. It could see sustainable growth if the automotive market sees a recovery.
