Blackberry (BB or BB.TO) is a next generation prevention-first AI cybersecurity and IoT platform software and services company. The company’s toal addressable market is US $45 billion in 2021, growing to US $89 billion in 2025 at a Compound Annual Growth Rate (CAGR) of 19%.
Blackberry had 567 million common shares issued and outstanding as of September 20, 2021. The share price today (Nov. 12, 2021) is US $10.78/share. So, the market capital is 6.1 billion.
As of August 31, 2021, Blackberry had 772 million cash and investments. It had 12 million positive operating cash flow in Q2 FY 2022. So, the balance sheet is very strong. Besides, the company is selling a portion of its vast patent portfolio – a large amount of cash is expected to become available to fuel its growth. CEO John Chen said the parties had agreed on a price for the patent sale and the deal could be closed soon.
The company reported US$40 million for its IoT business (-7% Q/Q; +29% Y/Y), US$120 milion for cybersecurity (+12% Q/Q; 0% Y/Y), and US$15 million for licensing and others. The IoT business was still negatively impacted by the pandemic and chip shortage, but is expected to recover gradually in the next few quarters. The Cybersecurity business was boosted by the pandemic last year and there was less tailwind for this quarter. See Q2 FY2022 presentation for more information.
For the next couple of quarters, CEO John Chen expects the company to have sequential Q/Q billings growth for the cyber business, continued recovery for the IoT business, and is hoping for strong growths next year. The full year guidance for the cyber business was US$495 – 515 M (+18% ~ +42% H2/H1) and US$180 ~ $200 M (+16% ~ +41% H2/H1) for the IoT business, indicating a very strong 2nd half of the fiscal year. If the patent sale does not happen this FY, the company expects ~100 M licensing revenue. So, the full year’s revenue is expected at US$775 M ~ $815 M (mid point = $795 M).
So, Blackberry’s P/S is at 6.1 B/795 M = 7.8. If the company maintains or accelerates its growth rate of 15%+ next year, then Blackberry is very undervalued given that the patent sale (could add hundreds of millions to billions) and the potential of Blackberry IVY do not seem to be priced in.
Estimating revenues from Blackberry IVY
- Number of EV with IVY on the roads by 2026.
Assume 20% new vehicles are EV, then there would be roughly 70 M * 20% = 14 M EVs in 2026, of which roughly 8.4 M (at 60%) would have QNX and likely IVY. Assume 4.2 M for 2025, 2.1 M for 2024, and 1.05 M for 2023, then we get 15.75 M EVs that would have BB IVY installed by 2026.
- Revenue per vehicle with IVY
Tesla (TSLA) connectivity charges US$13.99/month = $168/year. Blackberry’s UEM charges something like $99/year, its UES could charge something similiar. Blackberry IVY is essentially an IoT platform (learn more here) that provides management, security, communications, and data analytics services. I guess it could potentially make a lot more money per year than connectivity + UEM + UES ($366/year) put together. That means at least 15.75 M * $366/year = 5.8 B revenue for BB IVY in 2026. Growing at ~30% per year, with a P/S ratio of 15, we could get a $87 billion valuation ($153/share) for IVY only.
Taking another approach. Blackberry expects its TAM for IoT in 2025 to be ~$45 B. As a leader in IoT, I assume it could take more than its competitors combined, excluding Tesla. Assume BB IVY only competes within 60% of the ~$45 B market ($27 B) and takes half of that $27 B market, then its sales could be $13.5 B in 2025. This means more than double the valuation using the first approach ($153*2 = $306/share). In 10 years, the valuation would be so much greater with much more EVs using IVY, say, more than 150 M vehicles (150 M * $366/year = $57 B revenue; assume P/S = 10, then we get $57 B*10/.0567 B shares = $1005/share; So, BB to $1000 is not purely a dream!).
Blackberry’s Moat/Durable Competitive Advantages
Intangible assets: Portfolio of 38,000+ patents. Blackberry owns more patents in cyber security than its competitors combined.
Network effect: Not yet proven, but Blackberry IVY is cloud- and OS-agnostic and its ecosystem could become the Android of connected cars and also smart cities.
Efficient scale: QNX is a reliable microkernel OS that can power a scalable software platform.
Huge TAM and TAM optionality: Blackberry’s TAM is growing from $45 B in 2021 to $89 B in 2025. BB IVY is just one example of how Blackberry Spark can be used. The communications platform can be essential to smart cities.
Market leader: The company’s cyber security products are rated AAA by SE Labs. Blackberry Protect and Optics provided complete prevention (differentiator), complete detection, and zero false positives. Blackberry is also named by Frost and Sullivan as a leader in Auto and Smart Cities. QNX is used by 24 of the top 25 EV makers (except Tesla, which could also adopt IVY should they choose to).
Proven management: CEO John Chen is a proven turnaround artist who is patient and a visionary focusing long-term outcomes.
Others: early innings (IVY), sticky business (government and regulated sectors), cross-selling opportunities (prepare, prevent, protect), strong balance sheet etc.
Blackberry seems to be undervaluded with the cyber and IoT businesses improving, the patent sale potentially being closed soon, and the huge potential of Blackberry IVY. The company has a very strong moat with a basket of parts now organically integrated, uniquely positioned to address a huge market opportunity. Blackberry’s stock price could become 10x in the next 5 to 10 years.
Disclosure: I am long Blackberry.