Last year, BlackBerry (BB 1.82%) announced an ambitious goal of creating a software platform for the vast automotive market. But because of the company's current challenges with its cybersecurity portfolio, that opportunity may not translate into profits for investors.

A vast addressable market

Following its transition to a software-based security business initiated several years ago, BlackBerry announced a partnership with Amazon's Amazon Web Services (AWS) to create IVY, a software platform to securely exchange and manage standardized vehicle data. That platform, which should hit the market by February 2022, should provide automotive industry players with new opportunities, such as reducing costs and monetizing new services.

The success of such initiatives remains to be seen. But those developments expose BlackBerry to a vast total addressable market that management estimated at $89 billion by 2025, which corresponds to an attractive compound annual growth rate (CAGR) of 19%.

Colleagues looking at laptop in a data center.

Image source: Getty Images.

Challenges in cybersecurity

However, BlackBerry remains far from reaching that growth trajectory. During its first fiscal quarter, which ended on May 31, revenue declined 15.5% year over year to $174 million.

The ongoing negotiation to sell an important part of the company's patent portfolio had a negative effect on revenue. But more worryingly, revenue from the cybersecurity segment declined by 10.1% year over year to $107 million, which seems weak considering the secular growth in that market, boosted by the recent rise of ransomware attacks

In contrast, given that favorable context, the endpoint protection specialist CrowdStrike generated another quarter of impressive revenue growth (70% year over year to $302.8 million) during its latest quarter, despite its much larger scale.

In particular, BlackBerry's endpoint protection cybersecurity offering Cylance hasn't caught up yet with the competition. As an illustration, the research specialist Gartner positioned Cylance far away from many competitors in its May 2021 endpoint protection platforms magic quadrant in terms of ability to execute and completeness of vision.

Granted, BlackBerry enhanced its cybersecurity offerings last quarter with additional cloud-based capabilities to protect remote workers. But competitors, such as CrowdStrike, have already been proposing similar features for several quarters, or even years. 

Internet of Things

In contrast, BlackBerry's Internet of Things (IoT) segment showed encouraging signs of recovery. That segment mainly includes QNX, the company's embedded operating system that can be integrated into any kind of device.

So during the first fiscal quarter, revenue from IoT increased by 48.3% year over year to $43 million, partly thanks to the deployment of QNX in vehicles. Indeed, the research outfit Strategy Analytics estimated QNX software is now embedded in more than 195 million vehicles, compared to 175 million the year before.

That's an encouraging development for BlackBerry over the long term, as it plans to leverage its footprint in the automotive industry to grow the adoption of its IVY platform. In addition, after having announced its IVY Innovation Fund several months ago to drive innovation, it launched its IVY Advisory Council during the last quarter to develop use cases.

Growth priced in

Despite the drop following these mixed fiscal first-quarter results, BlackBerry's stock is still up more than 80% since the beginning of the year. The company's market cap, now at $6.8 billion, corresponds to 7.9 times trailing 12-month revenue of $861 million, which indicates the market is pricing in strong growth going forward.

So with cybersecurity representing 61.5% of revenue during the last quarter, the company must significantly improve its security business to match the market's expectations, which won't be easy given the crowded and strong competition in that area.

In addition, the success of the company's IoT business will partly depend on its cybersecurity portfolio. Indeed, BlackBerry will leverage its cybersecurity infrastructure and software to protect connected vehicles as well, as they remain exposed to similar threats as traditional computing devices, such as computers and laptops.

Thus, before considering investing in BlackBerry for the attractive potential of its IVY platform over the long term, I'll stay on the sidelines and wait for tangible improvements in the company's cybersecurity segment.