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BlackBerry’s (BB - Free Report) shares have declined 13.9% over the past three months, underperforming the Internet Software industry (up 18.5%) and the S&P 500 composite (up 3.1%).
Price Perfromance
Image Source: Zacks Investment Research
Against this backdrop, does the recent decline present a favorable entry point into BlackBerry’s improving fundamental story?
The investment case for BB is now centered mostly around its QNX division. At the same time, Secure Communications provides a recurring revenue base across government and regulated customers.
However, a lower share price alone does not establish a buying opportunity. Let’s discuss the company’s growth factors and the risks it faces to assess investment prospects and make an informed decision.
BB’s Investment Case Centered Around QNX
QNX remains BlackBerry’s strongest growth driver and is increasingly becoming central to its investment thesis.
Fiscal second-quarter revenues of $163.3 million rose 26% and came in 14.2% above the Zacks Consensus Estimate. Record QNX revenues and a large licensing arrangement supported the upside. QNX revenues rose 27% year over year to $80.3 million, while segment adjusted EBITDA rose 41% to $29 million, for a 36% margin. Performance was broad-based across development licenses, professional services and royalties.
BlackBerry believes roughly one-third of the approximately 90 million vehicles produced each year globally currently use the type of high-performance centralized computing architecture where QNX is most relevant. Management cited industry forecasts indicating this segment could expand to roughly three-fourths of the market over the next five years. This could result in the company’s addressable market more than doubling over that period, added management.
Higher adoption of SDP 8, which is the next-generation QNX platform designed for higher-performance compute architectures, bodes well.
BlackBerry’s move higher up the automotive software stack represents another major opportunity. QNX secured its first Alloy Kore design win with Coretura, the commercial-vehicle software joint venture between Daimler Truck and Volvo Group. The award carries estimated future royalties of more than $100 million and represents the largest design win in QNX history. Management described the Alloy Kore pipeline as healthy, with engagement involving global OEMs and Tier 1 suppliers, particularly in Europe and Asia.
That said, investors should not expect an immediate financial impact. BlackBerry specifically noted that the QNX design wins generally have a lead time before most royalties are recognized and that the Coretura deal will not materially alter the current fiscal-year revenue profile.
Beyond automotive, General Embedded Markets is an important long-term growth opportunity, expanding QNX’s reach into robotics, industrial automation and medical devices, while Physical AI represents another significant growth avenue. General embedded markets already account for roughly 20% of QNX revenues.
In August, QNX announced support for the Hailo-8 AI Accelerator on QNX SDP 8.0. This will expand the hardware options available to customers building AI-powered edge systems. Before that, QNX OS for Safety (built on QNX SDP 8.0) was selected by Momenta, a Physical AI company, and XHEART as the operating-system foundation for their Physical AI-defined autonomous driving platform.
BlackBerry consequently raised its fiscal-year QNX revenue forecast to $315-$325 million and adjusted EBITDA guidance to $95-$105 million.
Improving Cash Generation Strengthens Investment Case
Operating cash flow improved to $29.3 million from $3.4 million in the year-ago quarter. Free cash flow was $28.1 million, up from $2.6 million.
BlackBerry ended the quarter with nearly $447 million in cash and investments. A stronger balance sheet reduces financial pressure while giving BlackBerry options to support its growth initiatives.
Management said that it intends to use its financial flexibility to continue investing in QNX, repurchase shares when attractive and potentially pursue acquisitions that could accelerate expansion into the GEM space.
Secure Comm: A Key Risk for BB
Following the fiscal first quarter, BlackBerry had projected fiscal 2027 Secure Communications revenues in the range of $270-$280 million. In its latest update, the company lowered that range to $260-$270 million, while guiding adjusted EBITDA to $50-$58 million.
Management said it was taking a cautious view on the timing of government opportunities amid broader geopolitical and trade uncertainty, including Canada-U.S. tensions. However, management added that BlackBerry has not seen “anything material arising from this issue” and has not observed a “slowdown in pipeline generation outside of North America”.
In the fiscal second quarter, Secure Communications revenues rose 2% year over year to $61 million. Segment adjusted gross margin fell 500 basis points to 61%, reflecting lower-margin Secusmart device revenues. Adjusted EBITDA was $8 million, down 18%, with a 13% margin. Annual recurring revenues reached approximately $221 million, up 4%, while dollar-based net retention was 91%. First-half Secure Communications revenues rose 13% year over year, supported by renewals and expansions across the United States, Canada, Europe, Asia and the Middle East.
Management noted that roughly 80% of the business is supported by ARR. However, the key uncertainty lies in the remaining portion of the revenue outlook tied to larger government deals. Management said larger government opportunities can create quarter-to-quarter variability, as these have long sales cycles.
Investors also need to be cautious about BlackBerry’s licensing performance.Management said the unusually strong licensing contribution in the latest quarter resulted mainly from a new arrangement and should not be considered the normal quarterly run rate. The timing of larger licensing transactions can vary from quarter to quarter, added management.
BB Stock vs. Peers
BlackBerry faces competitive pressures in both QNX and cybersecurity businesses. Within QNX, it faces Aptiv PLC’s (APTV - Free Report) Wind River (VxWorks) and Alphabet’s Android Automotive OS. BlackBerry operates alongside CrowdStrike (CRWD - Free Report) , Palo Alto Networks (PANW - Free Report) and a host of other companies in the broader cybersecurity market.
CRWD and PANW have gained 45.9% and 31.1%, respectively, while APTV has declined 23.7% over the past three months.
Valuation After Recent Dip
BB is trading at a forward 12-month price-to-earnings multiple of 43.13X, higher than the industry’s multiple of 30.91X.
Image Source: Zacks Investment Research
APTV, PANW and CrowdStrike are trading at forward 12-month price/earnings multiple of 7.03X, 97.3X and 185.89X, respectively.
BB: Hold or Sell?
BlackBerry’s improving QNX momentum and stronger cash generation support its long-term growth prospects.
However, uncertainity around larger Secure Communications deals, uneven licensing revenues and the stock’s premium valuation temper the near-term upside potential.
At present, BlackBerry carries a Zacks Rank #3 (Hold). Existing investors can stay invested, but new investors are better off waiting for a favorable entry point.
View the Zacks #1 Rank List
Image: Bigstock
BlackBerry Shares Down 14% in the Past 3 Months: Hold or Sell?
Key Takeaways
BlackBerry’s (BB - Free Report) shares have declined 13.9% over the past three months, underperforming the Internet Software industry (up 18.5%) and the S&P 500 composite (up 3.1%).
Price Perfromance
Image Source: Zacks Investment Research
Against this backdrop, does the recent decline present a favorable entry point into BlackBerry’s improving fundamental story?
The investment case for BB is now centered mostly around its QNX division. At the same time, Secure Communications provides a recurring revenue base across government and regulated customers.
However, a lower share price alone does not establish a buying opportunity. Let’s discuss the company’s growth factors and the risks it faces to assess investment prospects and make an informed decision.
BB’s Investment Case Centered Around QNX
QNX remains BlackBerry’s strongest growth driver and is increasingly becoming central to its investment thesis.
Fiscal second-quarter revenues of $163.3 million rose 26% and came in 14.2% above the Zacks Consensus Estimate. Record QNX revenues and a large licensing arrangement supported the upside. QNX revenues rose 27% year over year to $80.3 million, while segment adjusted EBITDA rose 41% to $29 million, for a 36% margin. Performance was broad-based across development licenses, professional services and royalties.
BlackBerry believes roughly one-third of the approximately 90 million vehicles produced each year globally currently use the type of high-performance centralized computing architecture where QNX is most relevant. Management cited industry forecasts indicating this segment could expand to roughly three-fourths of the market over the next five years. This could result in the company’s addressable market more than doubling over that period, added management.
Higher adoption of SDP 8, which is the next-generation QNX platform designed for higher-performance compute architectures, bodes well.
BlackBerry’s move higher up the automotive software stack represents another major opportunity. QNX secured its first Alloy Kore design win with Coretura, the commercial-vehicle software joint venture between Daimler Truck and Volvo Group. The award carries estimated future royalties of more than $100 million and represents the largest design win in QNX history. Management described the Alloy Kore pipeline as healthy, with engagement involving global OEMs and Tier 1 suppliers, particularly in Europe and Asia.
BlackBerry Limited Revenue (Quarterly)
BlackBerry Limited revenue-quarterly | BlackBerry Limited Quote
That said, investors should not expect an immediate financial impact. BlackBerry specifically noted that the QNX design wins generally have a lead time before most royalties are recognized and that the Coretura deal will not materially alter the current fiscal-year revenue profile.
Beyond automotive, General Embedded Markets is an important long-term growth opportunity, expanding QNX’s reach into robotics, industrial automation and medical devices, while Physical AI represents another significant growth avenue. General embedded markets already account for roughly 20% of QNX revenues.
In August, QNX announced support for the Hailo-8 AI Accelerator on QNX SDP 8.0. This will expand the hardware options available to customers building AI-powered edge systems. Before that, QNX OS for Safety (built on QNX SDP 8.0) was selected by Momenta, a Physical AI company, and XHEART as the operating-system foundation for their Physical AI-defined autonomous driving platform.
BlackBerry consequently raised its fiscal-year QNX revenue forecast to $315-$325 million and adjusted EBITDA guidance to $95-$105 million.
Improving Cash Generation Strengthens Investment Case
Operating cash flow improved to $29.3 million from $3.4 million in the year-ago quarter. Free cash flow was $28.1 million, up from $2.6 million.
BlackBerry Limited Free Cash Flow (Quarterly)
BlackBerry Limited free-cash-flow-quarterly | BlackBerry Limited Quote
BlackBerry ended the quarter with nearly $447 million in cash and investments. A stronger balance sheet reduces financial pressure while giving BlackBerry options to support its growth initiatives.
Management said that it intends to use its financial flexibility to continue investing in QNX, repurchase shares when attractive and potentially pursue acquisitions that could accelerate expansion into the GEM space.
Secure Comm: A Key Risk for BB
Following the fiscal first quarter, BlackBerry had projected fiscal 2027 Secure Communications revenues in the range of $270-$280 million. In its latest update, the company lowered that range to $260-$270 million, while guiding adjusted EBITDA to $50-$58 million.
Management said it was taking a cautious view on the timing of government opportunities amid broader geopolitical and trade uncertainty, including Canada-U.S. tensions. However, management added that BlackBerry has not seen “anything material arising from this issue” and has not observed a “slowdown in pipeline generation outside of North America”.
In the fiscal second quarter, Secure Communications revenues rose 2% year over year to $61 million. Segment adjusted gross margin fell 500 basis points to 61%, reflecting lower-margin Secusmart device revenues. Adjusted EBITDA was $8 million, down 18%, with a 13% margin. Annual recurring revenues reached approximately $221 million, up 4%, while dollar-based net retention was 91%. First-half Secure Communications revenues rose 13% year over year, supported by renewals and expansions across the United States, Canada, Europe, Asia and the Middle East.
Management noted that roughly 80% of the business is supported by ARR. However, the key uncertainty lies in the remaining portion of the revenue outlook tied to larger government deals. Management said larger government opportunities can create quarter-to-quarter variability, as these have long sales cycles.
Investors also need to be cautious about BlackBerry’s licensing performance.Management said the unusually strong licensing contribution in the latest quarter resulted mainly from a new arrangement and should not be considered the normal quarterly run rate. The timing of larger licensing transactions can vary from quarter to quarter, added management.
BB Stock vs. Peers
BlackBerry faces competitive pressures in both QNX and cybersecurity businesses. Within QNX, it faces Aptiv PLC’s (APTV - Free Report) Wind River (VxWorks) and Alphabet’s Android Automotive OS. BlackBerry operates alongside CrowdStrike (CRWD - Free Report) , Palo Alto Networks (PANW - Free Report) and a host of other companies in the broader cybersecurity market.
CRWD and PANW have gained 45.9% and 31.1%, respectively, while APTV has declined 23.7% over the past three months.
Valuation After Recent Dip
BB is trading at a forward 12-month price-to-earnings multiple of 43.13X, higher than the industry’s multiple of 30.91X.
Image Source: Zacks Investment Research
APTV, PANW and CrowdStrike are trading at forward 12-month price/earnings multiple of 7.03X, 97.3X and 185.89X, respectively.
BB: Hold or Sell?
BlackBerry’s improving QNX momentum and stronger cash generation support its long-term growth prospects.
However, uncertainity around larger Secure Communications deals, uneven licensing revenues and the stock’s premium valuation temper the near-term upside potential.
At present, BlackBerry carries a Zacks Rank #3 (Hold). Existing investors can stay invested, but new investors are better off waiting for a favorable entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.