Sunday, 4 October 2020

BlackBerry (NYSE: BB / TSE: BB) - Worthy SaaS play or forget it?

Summary

  • BlackBerry is now a Software as a Service (SaaS) and Licensing as a Service (LaaS) focusing on Cybersecurity and automotive software with >70% gross margins
  • QNX is a big player in the automotive and EV industry
  • Software and Services revenue growth is not convincing enough


BlackBerry is a shadow of its former self and the revenue decline from its peak speaks for itself.
Figures from macrotrends.net
In recent years, they've been become more of a Software as a Service (SaaS) and Licensing as a Service (LaaS), focusing on Cybersecurity and automotive software via QNX. While the company focused on more software offerings, the legacy business via licensing still contributes a large amount of the company's revenues.
Source: Company's Presentation
Digging into their older results, they've managed to pivot away from the hardware business and grow their S&S revenue. Revenue mix has changed over the years but its not easy to decipher as the classifications have been changing.
Source: 10-Q and 40-F filings
Chart: Yahoo Finance
Ignoring their licensing revenue, Software & Services (S&S) growth is practically non-existent in the recent years. The biggest growth for (S&S) was in 2016 and the market largely ignored it, probably due to declining hardware revenue which still contributed too much of their revenues. BB announced a lot of new partnerships and clients in their press releases but they haven't seem to be reflected in to their results.
Source: The Motley Fool
BlackBerry Spark contributes majority of their S&S revenue but it is very to get an individual breakdown to tell the true growth of their individual offerings.
Q1 & Q2 results
Revenue growth for the latest quarter was fueled by licensing rather than software growth, and while S&S revenue declined.
https://canada.autonews.com/technology/blackberry-ceo-talks-competitors-autonomy-ces
While QNX took a hit due to the decline in automotive production, its a play on the autonomous and EV industry by providing the software and infrastructure which is integrated with their other offerings, rather than the self-driving capabilities. Maybe Tesla could open up their software offerings but I doubt it since its more of build-to-suit rather than a one-size fit all option. Some new developments include XPENG (NYSE: XPEV), Canoo (NASDAQ: HCAC (pre-merger) and the partnership with Amazon's AWS so its not just the legacy players. Amazon's investments in Rivian makes this a very interesting play as well. QNX faces competition from AGL, but an "out of the box" solution and proper safety certifications probably works better for automotive companies. Unlike Tesla, most of them aren't technology companies and definitely not on the software side.

Finally, CEO, John Chen is an advocate of co-operating with governments when it comes to privacy seen here and in his blog post in 2015. It might not be in the best interest for individuals but I can see this making them to be the preferred partner of governments. The S&S revenue growth is not convincing enough to invest in even at the P/S of ~2.7. However, if you consider their licensing revenue as a driver of growth, it might be worth looking into but I feel that there's too much legacy and uncertainty in terms of recurring revenue or growth.

Cybersecurity is rather CRWDed (get it?) area right now and there more attractive stocks out there. For people not the industry or without knowledge, its rather hard to understand the underlying businesses or technical advantages that one has over the other.
The opportunity in BlackBerry for me looks to be writing puts or calls assuming this ~4.40 is the new floor and barring any overall market decline. I don't see any bad news that would adversely it affect nor do I see news that would send the stock exploding to new highs. ~14 DTE 4.50 put at this levels give you about $10 for $440 risked for cash secured,or about 2.27% every 2 weeks.

In the meantime, I'm looking forward to the phone coming out in 2021.

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