Is BlackBerry Stock a Buy Now?

BlackBerry's (BB 1.80%) stock jumped 7% on June 29 after the enterprise software company posted its latest earnings report. For the first quarter of fiscal 2024, which ended on May 31, its revenue rose 122% year over year to $373 million and beat analysts' estimates by $214 million.

Its adjusted profit of $0.06 per share also marked an improvement from its loss of a nickel a year ago and cleared the consensus forecast by $0.11. That earnings beat was impressive, but does it indicate BlackBerry's stock is finally ready to recover after being cut in half over the past two years?

Image source: Getty Images.

BlackBerry gets a big boost from its licensing division

Last year, BlackBerry generated most of its revenue from its cybersecurity and Internet of Things (IoT) businesses. Its cybersecurity business houses its namesake security platform and Cylance, which it acquired in 2019. Its IoT business generates most of its revenue from QNX, the world's most popular embedded OS for connected vehicles.

But in the first quarter of fiscal 2024, BlackBerry's licensing and other division, which houses all of its patents, sold a portion of its portfolio to KPI (Key Patent Innovations). BlackBerry received an initial cash payment of $170 million from that deal during the first quarter, which boosted its licensing and other revenue to $235 million (63% of its top line) and completely offset the year-over-year declines in its cybersecurity and IoT businesses:

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

During the conference call, BlackBerry CEO John Chen said the licensing deal with KPI could be worth "as much as $900 million over time." But excluding the licensing segment's abrupt growth, BlackBerry's cybersecurity and IoT segments continue to face tough near-term headwinds. Its cybersecurity revenue finally grew sequentially as its sales to government customers gradually warmed up, but it still faces intense competition from faster-growing companies like CrowdStrike (CRWD 2.03%) and SentinelOne  in the crowded threat detection market.

The IoT segment struggled with sequential and year-over-year declines as the macro headwinds forced some automakers to delay their connected vehicle plans. However, Chen insists there was still "no change to the strong secular trends" for QNX and BlackBerry IVY, the cloud-connected automotive AI platform it co-developed with Amazon Web Services (AWS).

BlackBerry expects its long-term growth to stabilize

BlackBerry didn't provide any precise guidance for the second quarter, but Chen said that it would probably be "a little better" than its first quarter. He also expects the cybersecurity business to stabilize in the second half of the year. Analysts expect BlackBerry's revenue to rise 39% to $912 million for the full year, and most of that growth will likely be driven by its licensing deal with KPI. Based on that estimate, its stock doesn't seem expensive at 3 times this year's sales.

From fiscal 2023 to fiscal 2026, BlackBerry expects its revenue to grow at a compound annual growth rate (CAGR) of 12%-15%, driven by a 9%-12% CAGR in cybersecurity revenue and 18%-22% CAGR in IoT revenue.

That outlook is stable, but it's also easy to find higher-growth plays in the cybersecurity and connected vehicle markets. For example, analysts expect CrowdStrike's revenue to grow at a CAGR of 30% from fiscal 2023 to fiscal 2026 (which ends in Jan. 2026), while they expect the automotive chipmaker Mobileye's (MBLY -5.50%) revenue to rise at a CAGR of 28% from 2022 to 2025. Those two stocks might be better all-around growth plays than BlackBerry, which could struggle over the next few years as the slower growth of its cybersecurity business offsets the expansion of its automotive business.

BlackBerry's profitability is improving on an adjusted basis, and it's narrowing its net losses on a generally accepted accounting principles (GAAP) basis. But analysts still don't expect to break even on a GAAP basis within the next three years, and all of that red ink could make it an unappealing investment as long as interest rates stay high.

Is BlackBerry worth buying right now?

John Chen certainly deserves credit for bringing BlackBerry from the brink, abandoning its dying hardware business, and entirely transforming it into a software company. But Chen also hasn't proven that the company can meaningfully expand its cybersecurity business or profit from the long-term expansion of the connected and driverless vehicle market yet.

For now, I think investors should either stick with leading cybersecurity plays like CrowdStrike or established automotive tech leaders like Mobileye. It simply doesn't make sense to invest in a slower-growth company like BlackBerry, which still faces tougher macro and competitive headwinds than many of its peers in both of those expanding markets.