BlackBerry's (BB -4.39%) stock tumbled nearly 9% on Dec. 22 following its latest earnings report. For the third quarter of fiscal 2023, which ended on Nov. 30, the cybersecurity and Internet of Things (IoT) software company's revenue fell 8% year over year to $169 million, but beat analysts' estimates by $2 million. On the bottom line, it posted an adjusted net loss of $0.05 per share, which also topped expectations by two cents but marked a decline from its breakeven earnings a year ago.

BlackBerry cleared Wall Street's low bar, but investors clearly weren't impressed. Its stock remains down more than 60% for the year, and analysts are bracing for a 6% revenue decline in fiscal 2023 -- which would represent its third consecutive year of declining revenue. Let's weigh the bear and bull cases to see where this out-of-favor stock might end up next year.

An IT professional checks a tablet computer.

Image source: Getty Images.

What the bears will tell you about BlackBerry

The bears believe that BlackBerry, which transformed from a smartphone maker into a software company over the past decade, is still a struggling underdog that doesn't have any clear competitive advantages.

BlackBerry splits its business into three segments: cybersecurity (including its namesake security services and Cylance, which it acquired in 2019), IoT (including its QNX embedded OS for vehicles), and its licensing and other business (which significantly shrank after it stopped licensing its brand to other smartphone makers and sold off most of its legacy patents).

But as this table illustrates, its cybersecurity business lost its momentum over the past year and offset the growth of its IoT business, which had benefited from rebounding auto sales in a post-pandemic market. That pressure was exacerbated by its gradual loss of licensing revenue.

Segment

Q3 2022

Q4 2022

Q1 2023

Q2 2023

Q3 2023

Cybersecurity Revenue

$128 million

$122 million

$113 million

$111 million

$106 million

YOY Growth

(2%)

0%

6%

(8%)

(17%)

IoT Revenue

$43 million

$52 million

$51 million

$51 million

$51 million

YOY Growth

34%

37%

19%

28%

19%

Licensing and Other Revenue

$13 million

$11 million

$4 million

$6 million

$12 million

YOY Growth

(77%)

(78%)

(83%)

(60%)

(8%)

Total Revenue

$184 million

$185 million

$168 million

$169 million

$169 million

YOY Growth

(16%)

(12%)

(3%)

(4%)

(8%)

Data source: BlackBerry. YOY = Year-over-year.

BlackBerry didn't provide any exact revenue guidance for the fourth quarter or full year. Instead, it predicted its IoT revenue would rise 15%-18% for the full year -- compared to its 37% growth in fiscal 2022 -- and that its cybersecurity revenue would stay flat in the first half of calendar 2023.

BlackBerry's IoT business is cooling off because rising rates and other macro headwinds are curbing the market's appetite for new vehicles. Those headwinds are also hurting its cybersecurity business by delaying big enterprise software deals. It also faces intense competition from faster-growing cybersecurity companies like Palo Alto Networks and CrowdStrike, which both anticipate high double-digit sales growth in their current fiscal years.

As BlackBerry's growth cools off, its bottom line is crumbling. After generating a slim net profit of $12 million in fiscal 2022 (driven by $21 million in investment-related gains), it posted a net loss of $239 million in the first nine months of fiscal 2023 from just $505 million in revenue. That's a precarious situation for a company that ended the third quarter with just $255 million in cash and equivalents and will make it a tough stock to buy as rising interest rates punish unprofitable companies.

The stock also can't be considered a bargain at 3 times this year's sales, especially when other higher-growth software companies like Twilio are trading at comparable valuations.

What the bulls will tell you about BlackBerry

The bulls expect BlackBerry's growth to accelerate again as the near-term macro headwinds dissipate. They believe IVY, its partnership with Amazon Web Services (AWS) which integrates QNX into a new generation of connected vehicles, will reinforce its lead in the automotive market and boost its IoT revenue.

BlackBerry also expects its cybersecurity business to start growing again in the second half of calendar 2023 as the macro situation improves and it expands Cylance into new markets like connected vehicles. Based on those expectations, analysts expect BlackBerry's losing streak to end with 6% revenue growth in fiscal 2024.

With an enterprise value of just $2.2 billion, BlackBerry could still be a compelling takeover target for larger cloud or cybersecurity companies. Amazon could buy BlackBerry to strengthen AWS' defenses and take over the connected vehicle market, or it could be a great addition to Palo Alto's growing ecosystem of cloud and AI security services.

Which argument makes more sense?

BlackBerry's CEO John Chen brought the company back from the brink by ditching its dying smartphone business, but it still faces difficult challenges. QNX makes it a good play on the secular growth of connected vehicles, but its cybersecurity business could remain soft as it struggles to keep pace with its larger and faster-growing rivals. BlackBerry isn't doomed yet, but investors shouldn't touch this struggling company until its core growth engines stabilize and warm up again.