To The Moon

Investment Thesis

BlackBerry Limited (NYSE:BB) is enduring cyclic adversities in its financial performance and market valuations. As a result of a negative forecast for the fiscal fourth-quarter performance, BB shares plunged13%. However, its long-term fundamentals suggest anupside potential over the coming years.

Indeed, the cybersecurity business is having a terrible year, exposing the firm's challenges, while the auto segment remains the growth catalyst for BlackBerry's business. Nevertheless, the pullback has created an attractive entry point, and BB is a speculative buy for the short term.

BlackBerry's Financial Performance & Outlook

BlackBerry's revenue isexpected to declineby around 16% in the fiscal year 2023 compared to theprevious year, based on a preliminary estimate of approximately $656 million. The decline is primarily due to significantgovernment deals slippinginto the fiscal year 2024 in the cybersecurity business unit. The IoT business unit's revenue is expected to grow by 16% year-over-year, reaching approximately $206 million, in line with the previously provided outlook. The Licensing and Other business unit's revenue is also expected to decrease to roughly $32 million, reflecting a decline of 49.2% from the previous year's revenue.

While IoT is expected to grow, the decline in cybersecurity, licensing, and other business units will result in an overall decrease in BlackBerry's revenue. BlackBerry's financial performance has been cyclical, with periods of encouraging and discouraging investor sentiment. The market's estimates for BlackBerry's earnings show that the company is expected to face a decline in earnings in 2023, with projectedearnings per shareof -$0.21, representing a decline of 111% compared to the previous year. However, the market anticipates a recovery in earnings in 2024, with earnings per share expected to be -$0.15, representing a year-over-year growth of 30.87%.

Data byYCharts

Despite these challenges, themarket is optimisticabout BlackBerry's long-term market opportunities and strategic investments. As a result, the street expectshigherforward EPS long-term growth than the sector median. In addition, the market believes that BlackBerry's strategic investments will enable it to generate strong earningsgrowthin the future, overcoming the short-term challenges it faces.

BB's capital allocation focuses on organic growth, including investing in G-2-M headcount in IoT and Cyber, research and development for product roadmaps, and critical strategic investments such as IVY. Moreover, selling BlackBerry's patent portfolio would strengthen its strongbalance sheet.

BlackBerry is targeting a CAGR of13%in total revenue during 2022-2027, with growth targeted in IoT and cyber. The company also aims for an average gross margin expansion of 100+ basis points per year, with operating margins trending towards timeless model goals of 20% by 2027. The investment phase during 2023 may result in modestly negative EPS and cash flow, but by 2024, the company aims to approach breakeven, with positive cash flow and EPS expected from 2025 onward.

Investor Presentation Q3FY23

Developments In The Competitive Landscape

BlackBerry competes in the enterprise software and security market and faces challenges from well-established companies, including Microsoft, IBM, Palo Alto Networks, Cisco Systems, MobileIron, and VMware. These companies offer a range of software and services that directly compete with BlackBerry's product offerings.

In addition, BlackBerry also faces competition from startups and smaller companies that focus on specific niches within the enterprise software and security market. To remain competitive, BlackBerry concentrates on innovation and productdifferentiationby investing heavily in research and development to create new products and features and exploring partnerships and acquisitions to expand its capabilities and market reach.

Additionally, significant developments in its product portfolio will give BlackBerry a competitive edge in its end markets (IoT and cybersecurity). For example, one of the company's key partnerships is withAmazon Web Services (AWS). BlackBerry has been working with AWS to elevate its foundational software, BlackBerry QNX, to the cloud. This move is designed to accelerate time to market for mission-critical embedded systems, which are becoming increasingly important in industries such as automotive and healthcare.

In the automotive industry, BlackBerry's QNX software is widely used in connected and autonomous vehicles. Its partnership with Human Horizons to power the HiPhi Z vehicle's autonomous driving controller and intelligent digital cockpit further highlights BlackBerry's strong position in this sector. Additionally, its partnership with Dayin Technology to develop acoustic solutions for Great Wall Motors' premium next-generation vehicles demonstrates BlackBerry's ability to provide specialized solutions to meet customer needs.

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Moreover, BlackBerry's new Cyber Threat Intelligence (CTI) service provides customers with enhanced threat prevention, detection, and response capabilities, highlighting the company's continued focus on delivering comprehensive cybersecurity solutions. Additionally, its authorization by NATO to provide its SecuSUITE for Government solutions for secure communications further highlights BlackBerry's expertise in delivering highly secure communication solutions for government agencies.

Finally, BlackBerry's continued focus on improving its cybersecurity platform, with the latest eSIM and Android management and enhanced GoogleChromebookintegration, demonstrates its commitment to providing customers with improved threat identification and remediation capabilities and reduced administrative overhead.

Overall, BlackBerry's strategic partnerships and product offerings highlight its focus on providing comprehensive cybersecurity solutions to customers in key industries and its commitment to developing cutting-edge technologies and expanding its market reach.

Progressive Business Outlook

Looking beyond financial performance led to the assessment of favorable fundamentals for BlackBerry. At this parameter, BlackBerry is well-positioned in growing markets and has a clear strategy for growth. The company expects substantial operating leverage and synergies from the convergence of IoT and cybersecurity. BlackBerry has market leadership in two synergistic & converging growth engines, IoT and cybersecurity, with a combined $97 billiontotal addressable marketby 2025, expanding at a CAGR of 18%.

Investor Presentation Q3FY23

BlackBerry's QNX holds the market leader position in its core segments, with a strong reputation and safety certifications creating a robust defensive moat. Moreover, with vehicles becoming more software-defined and having more computing power, the company expects multiyear tailwinds for QNX.

Additionally, similar dynamics are expected in adjacent verticals like medical and industrial. BlackBerry's market share is expanding in the IoT market and is expected to grow 8%-12% CAGR during 2022-2026, with BlackBerry expecting above-marketrevenue growth of 19.8%during 2022-2027.

BlackBerry invests in a service capacity, core research and development, go-to-market coverage, and a strategic technology roadmap to achieve its targets. It includes investments in next-gen SDP EDGE performance, next-gen safety and security, and reducing developer friction to improve product development and enhance their competitive advantage.

In addition, strategic investments like IVY offer additional growth potential and substantial operating leverage. More specifically, BlackBerry'sIVY platform offers significant growth potential with recurring revenue opportunities. The serviceable addressable market for IVY is expected to grow strongly and reach approximately $800 million by 2025. Theplatformhas generated strong interest from OEMs and faces no comparable competition. BlackBerry is executing its strategy well, with product development on track and adding new ecosystem partners. Design wins are targeted for 2023, and the company is well-positioned to capture a significant market share.

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Additionally, BlackBerry sees a significant investment opportunity in cybersecurity, with plans to recruit around100 cybergo-to-market professionals in 2023. The cybersecurity market is growing at a CAGR of approximately 14%, with large SAMs, significant upsell, and new logo opportunities. BlackBerry's cybersecurity products have leading security certifications and are relied upon by governments and financial services companies. The company also sees a strong upsell opportunity with its Cylance module and an immense opportunity for managed services. To achieve its growth targets, BlackBerry plans to invest in go-to-market efforts, leverage the Cylance brand, and regain its technology leadership position through Managed XDR and ZTNA.

In conclusion, looking at business fundamentals, BlackBerry's IoT offerings, including QNX and IVY, and its cybersecurity Spark Suite are well-positioned to capitalize on the growing IoT market trends, including increasing safety and security concerns, edge devices becoming software-defined, and rapidly increasing performance requirements. Lastly, BlackBerry's strategic partnerships, a robust ecosystem of solutions, and multiyear strategy focused on targeted core research and development, business transformation, and long-term commitments provide a strong foundation for continued growth and success.

Takeaway

Overall, BlackBerry Limited's financial performance remains dynamic, with challenges and opportunities to watch out for. Still, BlackBerry delivers a misty long-term growth outlook considering its standalone historical financial performance and dilutive market estimates. Nevertheless, considering the negative sentiment toward BlackBerry Limited, the recent plunge has sufficiently reflected the market's concerns and the temporary headwinds, setting up BlackBerry Limited stock to rebound from current levels.

$BlackBerry(BB)$

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