BlackBerry (BB 2.42%) and Unity Software (U 3.97%) were both once high-growth tech stocks that lost their momentum and disappointed their investors. BlackBerry was once the world's top smartphone maker, but it lost that booming market to Apple's (AAPL 0.38%) iPhones and Android-powered devices. It subsequently stopped producing phones and expanded its cybersecurity and Internet of Things (IoT) services, even as it struggled to keep pace with its faster-growing peers.
Unity's game-development engine was used to produce about half of the world's mobile, PC, and console games at the time of its initial public offering (IPO) in 2020. It also provided tools for monetizing games with in-app purchases and integrated ads. But over the following four and a half years, its growth was disrupted by Apple's privacy-oriented changes on iOS, macroeconomic headwinds for the advertising market, and tough competition from other game-development platforms like Epic Games' Unreal Engine.
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Over the past four years, BlackBerry's stock price tumbled nearly 60% as Unity's stock plunged more than 75%. Which of these stocks has a better shot at a comeback?
BlackBerry is running out of good options
After years of declining sales, BlackBerry stopped manufacturing its own phones in 2016 to focus on expanding its cybersecurity, IoT, and licensing businesses. It acquired Cylance in 2019 to strengthen its cybersecurity business, expanded its IoT segment by installing its QNX OS in more vehicles, and leveraged its patent portfolio to collect more licensing fees.
But from fiscal 2020 to fiscal 2024 (which ended last February), BlackBerry's annual revenue still declined from $1.04 billion to $853 million. It only slightly narrowed its annual net loss from $152 million to $130 million.
NYSE: BB
Key Data Points
BlackBerry's big bet on cybersecurity didn't pay off. Instead, it struggled to keep pace with bigger and faster-growing competitors like Palo Alto Networks and CrowdStrike, and it faces some tough macroeconomic headwinds that are contributing to a drain in its cash reserves. In February, BlackBerry sold all of Cylance's endpoint security assets to Arctic Wolf for just $160 million in cash compared to its original purchase price of $1.4 billion. It also sold most of its patent portfolio over the past three years.
After those divestments, BlackBerry is going all-in on its IoT business. It expects the growth of QNX, which is already installed in more than 255 million vehicles worldwide, to drive its future sales. However, QNX still faces plenty of competition from similar real-time operating systems like VxWorks, FreeRTOS, and Microsoft's Windows Embedded.
From fiscal 2024 to fiscal 2027, analysts expect its revenue to drop from $853 million to $585 million. Yet they expect it to turn profitable in fiscal 2026 and grow its net income by 60% to $80 million in fiscal 2027 as it rightsizes its shrinking business. But with an enterprise value of $2.7 billion, it doesn't look cheap at nearly five times its projected sales for fiscal 2027.
Unity's business is gradually stabilizing
From 2018 to 2023, Unity's revenue increased at a compound annual growth rate (CAGR) of 42% from $381 million to $2.19 billion. However, a lot of its growth in 2023 was driven by its $4.4 billion all-stock merger with the ad tech company ironSource in late 2022. Its annual net loss also widened from $132 million to $822 million during those five tumultuous years.
Unity merged with ironSource to reboot its entire advertising business, which faced an existential crisis in 2021 and 2022 after Apple's iOS 14 update allowed its users to turn off data tracking and targeted advertising features for individual apps.
NYSE: U
Key Data Points
That slowdown coincided with a broader slowdown in the gaming market after its pandemic-driven growth spurt. To diversify its business away from the gaming industry, Unity acquired Peter Jackson's theatrical special effects studio Weta FX in 2021 and rolled out more tools for creating AR, VR, and digital-twin applications.
But at the end of 2023, Unity shut down Weta FX's Weta Digital to cut costs. That shutdown, along with the sluggish growth of its gaming and advertising businesses, caused its revenue to drop 17% to $1.8 billion in 2024. It only narrowed its net loss from $882 million to $664 million, even as it executed more layoffs and cost-cutting initiatives. Its then-CEO John Riccitiello -- who once boldly claimed Unity could grow its revenue by at least 30% annually over the long term -- resigned in late 2023.
From 2024 to 2027, analysts expect Unity's revenue to grow at a CAGR of 6% to $2.2 billion as its gaming business stabilizes, and it expands its new Vector AI platform for ads. With an enterprise value of $9.5 billion, Unity looks reasonably valued -- but definitely not cheap -- at four times its projected sales for 2027. It's also expected to stay deeply unprofitable.
The better buy: Unity
I wouldn't rush to buy either of these beaten-down stocks right now. But if I had to choose one over the other, I'd invest in Unity because it's still growing; it's gradually narrowing its losses; and it might pull in more advertisers with its AI-driven platform. BlackBerry will remain uninvestable unless it stops burning the furniture to stay warm.
