In March 2019, BlackBerry (NYSE:BB) posted its first quarter of positive annual revenue growth in years. It achieved that turnaround by halting the production of its smartphones, expanding its software and services ecosystem, and aggressively collecting fees from its patent portfolio.

But that five-quarter streak abruptly ended in the first quarter of its fiscal 2021, which ended on May 31 and included the heavy early impact of the COVID-19 crisis. BlackBerry's revenue fell 20% year over year to $214 million, but it squeezed out a slim adjusted profit of $0.02 per share -- up from a penny a share last year. Does BlackBerry's revenue decline indicate that darker days are ahead? Or will it be able to resume its second-act turnaround after the pandemic-related headwinds ease?

An IT professional checks a tablet.

Image source: Getty Images.

Reviewing BlackBerry's long-term plans

Today, BlackBerry's core portfolio of software and services is mainly geared toward helping other companies monitor, control, and secure mobile devices. CEO John Chen, who took the helm in 2013, expanded that ecosystem with its acquisitions of smaller companies like Good Technology, Encription, and Cylance.

Its software and services revenues accounted for 72% of its overall revenue last quarter, and 90% of its software revenue was recurring. BlackBerry also forged new software partnerships with tech giants like Microsoft and Vodafone.

The remaining 28% of BlackBerry's revenue came from its "licensing and other" business. This segment houses BlackBerry's embedded operating system QNX, the most popular OS for connected vehicles worldwide, and thousands of other patents. To boost its licensing revenue, BlackBerry expanded QNX's reach across the automotive market, licensed its brand to the Chinese smartphone maker TCL, and sued a wide range of companies for patent infringement.

How fast is BlackBerry growing?

BlackBerry's revenue kept growing during its fiscal 2020 (which ended March 31) thanks to its rising software and services revenues, before stalling out last quarter:

Period

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Revenue Growth (YOY)

23%

22%

23%

13%

(20%)

YOY = Year-over-year. Non-GAAP. Source: BlackBerry quarterly results.

However, BlackBerry's growth was buoyed by its takeover of Cylance, a deal that closed in February 2019. BlackBerry recently merged Cylance's security services with its UEM (unified endpoint management) services as the "Spark" platform, but the combined division still faces tough year-over-year comparisons and stiff competition in the crowded cybersecurity market.

BlackBerry claimed Cylance and its crisis communication platform AtHoc exceeded expectations during the quarter, but weak enterprise spending still reduced its total software and services revenues by 12% annually.

In the licensing unit, BlackBerry's the installed base for QNX expanded by 25 million year over year to 175 million vehicles, but the segment's royalties slumped as the pandemic disrupted auto manufacturing worldwide. That drop reduced its total licensing revenues by 27%.

BlackBerry doesn't disclose its specific revenue from QNX, but Chen declared the unit generated $150 million in royalty revenue in 2020, with an additional $70 million to $100 million from developer seats and professional services. In other words, QNX likely accounts for about a fifth of BlackBerry's top line.

Losing some of QNX's higher-margin licensing revenue also reduced BlackBerry's adjusted gross margin by 4 percentage points annually to 71%. Meanwhile, BlackBerry's operating expenses more than tripled -- mainly due to a big impairment charge related to the restructuring of the Spark unit -- which widened its GAAP operating loss.

Not many catalysts on the horizon

BlackBerry didn't provide any guidance, but Chen called the consensus forecast -- which calls for a 13% revenue decline for the full year -- "reasonable" during the conference call. Chen also warned BlackBerry's licensing revenue would decline by about 28% to $250 million for the year. On the bottom line, analysts expect the company's adjusted earnings to decline by 46%. That's a dismal result for a company whose stock trades at a forward price-to-earnings ratio of 70.

BlackBerry might eventually recover, but the macro headwinds, the auto industry slowdown, and tough competition in the enterprise software and cybersecurity markets will all limit its near-term growth. Simply put, there's no real reason to buy BlackBerry now when there are plenty of other high-growth tech stocks to choose from.