BlackBerry’s (BB) Q3 fiscal year report exceeded expectations and triggered a significant stock price increase. Strong growth in the IoT and cybersecurity segments boosted BlackBerry’s total quarterly revenue, along with the strong performance of QNX, BlackBerry’s operating system, contributed to this favorable market reaction. Further, the recent sale of BlackBerry’s cybersecurity entity, Cylance, to Arctic Wolf has helped propel the company forecasts for continued growth for Q4 and the full Fiscal year 2025, making it an intriguing option for investors to consider.
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BB Is no Longer a Smartphone Leader
Once the smartphone market leader, Blackberry has significantly transformed into a cybersecurity software company. This adjustment, motivated mainly by the intense competition in the smartphone market from rivals such as Apple (APPL) and Android (GOOG), has seen Blackberry redirect its attention away from hardware manufacturing to communication software and services, specifically targeting the automotive and enterprise sectors.
The company’s portfolio includes mobile fortification, mission-critical communications, and management of critical events. Furthermore, BlackBerry has been an early adopter of artificial intelligence and machine learning to offer sophisticated cybersecurity solutions to its clients.
Launching the QNX Platform
BlackBerry has strategically renamed its division from ‘BlackBerry IoT’ to ‘QNX’ to enhance recognition and reinforce its influence within the automotive and other embedded industries. QNX is currently integrated into over 255 million vehicles, and Hyundai Mobis has chosen BlackBerry QNX to power its upcoming digital cockpit platform.
BlackBerry QNX has partnered with Intel (INTC) to launch a software-defined functional safety platform for industrial automation. As part of a collaboration to simplify software development for automakers, BlackBerry QNX will soon be available on Microsoft Azure (MSFT). QNX is also making its foundational software more accessible for non-commercial use through the QNX Everywhere initiative.
BlackBerry has entered into a definitive agreement with Arctic Wolf to acquire its Cylance endpoint security assets for $160 million. The assets are scheduled to be sold in the fourth quarter of 2024. This will allow BlackBerry to focus its resources and energy on growing the QNX platform.
Growth Across Segments
In the third quarter of Fiscal 2025, the company reported a total revenue of $162 million with a gross margin of 74%. The Internet of Things (IoT) sector led the growth with a 13% sequential increase in revenue, surpassing guidance at $62 million. Its gross margin rose by 3 points to 85%. The adjusted EBITDA in this sector also experienced a substantial growth of 38% sequentially, reaching $18 million.
Cybersecurity revenue grew 7% sequentially, exceeding guidance at $93 million. Its gross margin increased 12 points to 67%. The cybersecurity sector’s adjusted EBITDA increased by $14 million sequentially to an adjusted value of $8 million. Licensing revenue exceeded the forecasted figures, reaching $7 million, and its EBITDA was reported at $6 million.
The company’s total adjusted EBITDA surpassed the guidance at $23 million. The non-GAAP net income was $12 million, and GAAP net loss was $11 million. Earnings per share increased by $0.02 to $0.02, while the GAAP basic loss per share improved by $0.01 sequentially to $0.02. As of the quarter’s end, the company reported total cash, cash equivalents, and investments of $266 million.
BB’s Q4 Guidance
Following third-quarter earnings, BB’s management has provided guidance for the fourth quarter and the entire Fiscal year 2025. The estimated total revenue for the fourth quarter ranges from $126 to $135 million, and for the full fiscal year, it ranges from $517 to $526 million. The company also provided EBITDA guidance for the various segments and the company as a whole. The Non-GAAP basic EPS is projected to fall between -$0.01 and $0.01 for the fourth quarter and -$0.02 and breakeven for the full fiscal year.
Rising Price Targets
The stock has enjoyed a strong upward trajectory recently. Climbing over 54% in the past three months. It trades near the high end of its 52-week price range of $2.01 – $4.35 and shows ongoing positive price momentum as it trades above most major moving averages. At a P/S ratio of 1.14x, the stock appears relatively fairly valued compared to the Consumer Discretionary sector average of 0.95x.
Analysts following the company have taken a cautious view of BB stock, though many have recently raised their share price target. For instance, RBC Capital raised its price target to $4 (from $3.25) while maintaining a Sector Perform rating on the shares. It noted QNX’s improving fundamentals, higher investor visibility, and potential divestiture of BlackBerry’s Secure Communications unit.
Blackberry is rated a Hold overall, based on the recent recommendations of four analysts. Their average price target for BB stock is $3.50, which represents a potential downside of -12.28% from current levels.
Bottom-line on Blackberry
BlackBerry’s recent stellar Q3 performance exceeded market expectations, thanks to the sale of its cybersecurity entity, Cylance, and the robust performance of its operating system, QNX. The future looks promising, with BlackBerry projecting continued growth in Q4 and beyond. It’s worth noting that BlackBerry’s share price has seen positive momentum, owing to the company’s strong performance and optimistic outlook, with analysts further raising their price targets. Still, the overall rating is a ‘Hold,’ suggesting investors may want to proceed cautiously and perhaps leg into a position.
