Is BlackBerry Stock a Buy?

In June 2008, BlackBerry (NYSE: BB) -- then known as Research in Motion -- saw its stock hit a record high of $147.55 as its market cap hit $83.3 billion. It was the world's top smartphone maker and its business was firing on all cylinders.

Today, BlackBerry's stock trades at about $2.50 a share with a market cap of $1.5 billion. It shed more than 98% of its value as it lost the smartphone market to Apple's iPhones and Alphabet's Google Android devices.

Image source: Getty Images.

It stopped producing its own smartphones in 2016 and tried to expand its software and licensing divisions, but those efforts failed to revive its stock. BlackBerry is still struggling, but could it be a good turnaround play for contrarian investors?

How does BlackBerry make money?

BlackBerry now splits its business into three segments: cybersecurity, Internet of Things (IoT), and licensing. Its cybersecurity business, which generated 60% of its revenue in its latest quarter, houses Cylance (which it acquired for $1.4 billion in 2019) and its other endpoint security services. Its IoT segment, which accounted for 38% of its revenue, generates most of its revenue from its QNX-embedded OS for connected vehicles.

Its licensing business, which accounted for the remaining 2% of its revenue, shrank significantly after it stopped licensing its brand to third-party smartphone makers in 2020 and sold approximately 32,000 of its non-core patents last year.

How fast is BlackBerry growing?

BlackBerry's revenue fell 9% in fiscal 2023 (which ended in February 2023) and grew 30% in fiscal 2024. However, its growth in fiscal 2024 was significantly inflated by a big one-time cash payment in the first quarter from the sale of its non-core patents. So to get a clearer view of BlackBerry's business, we should focus on the growth of its cybersecurity and IoT businesses.

Data source: BlackBerry. YOY = Year over year.

BlackBerry's cybersecurity business struggled as the macro headwinds drove many companies to rein in their spending. It also faced tough competition from bigger endpoint security companies like CrowdStrike and Palo Alto Networks. However, that closely watched business finally grew sequentially and year over year in the second quarter as it expanded its government business to offset its slower growth in the commercial market.

The IoT business, which previously struggled with the sluggish growth of the auto market and delays for new QNX-powered projects, also grew sequentially and year over year in the second quarter as the industry stabilized.

What's next for BlackBerry?

For the third quarter, BlackBerry expects to generate $86 million-$90 million in cybersecurity revenue and $56 million-$60 million in IoT revenue. In other words, the cybersecurity business could continue to struggle as its IoT business gradually expands.

For the full year, analysts expect its total revenue to decline 29% to $603 million as it laps its patent sale. Analysts also expect BlackBerry's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to drop from $57 million in fiscal 2024 to $0-$10 million in fiscal 2025. Based on those estimates and its enterprise value of $1.5 billion, BlackBerry still doesn't seem like a screaming bargain at 2.5 times this year's sales and more than 300 times the midpoint of this year's adjusted EBITDA.

But from fiscal 2024 to fiscal 2027, analysts expect BlackBerry's revenue to grow at a compound annual growth rate (CAGR) of 41% as its adjusted EBITDA increases at a CAGR of 6%. We should take those estimates with a grain of salt, but that growth could be driven by the stabilization of its cybersecurity business, the expansion of its cybersecurity services into vehicles, and new QNX projects like its IVY collaboration with Amazon Web Services (AWS).

Is it the right time to buy BlackBerry?

BlackBerry isn't down for the count yet, but I think the consensus expectations are still too optimistic. It still faces fierce macro and competitive headwinds in the crowded cybersecurity sector, and it probably can't expand QNX rapidly enough to offset that pressure. So for now, I'd avoid BlackBerry stock and buy more promising cybersecurity or IoT stocks instead.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon and Apple. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, CrowdStrike, and Palo Alto Networks. The Motley Fool recommends BlackBerry. The Motley Fool has a disclosure policy.