BlackBerry: 2023 Analyst Day Does Little to Grow Our Confidence in Security Strategy

We maintain our $4.90 fair value estimate for no-moat BlackBerry BB shares after the firm’s 2023 analyst day. Management largely reiterated existing targets and strategy throughout its presentations, in which we continue to hold moderate skepticism. We continue to have greater confidence in the firm’s Internet of Things business, which benefits from trends toward autonomous vehicles and is a market leader. However, the larger cybersecurity business remains disappointing and has an outsize effect on firmwide results. Overall, we see shares as fairly valued and would point investors to moaty and more discounted software names.

The 2023 BlackBerry analyst day focused on progress over the past year toward strategies across security and IoT. We believe the IoT strategy is bearing out, with the IVY general release occurring at the end of May 2023, the release of QNX in the cloud for developers, and a positive view of what the firm displayed at CES 2023 back in January. We don’t hold out hope for a meaningful turnaround in the cyber business anytime soon. Management expects churn to stop after the first half of fiscal 2024 and for annual recurring revenue to begin sequential growth by the end of fiscal 2024. Even if true, the security business has much more to do to gain any sort of confidence from us.

For actual targets, BlackBerry doubled down on growth figures from the 2022 analyst day, though absolute numbers have come down after a poor fiscal 2023. Management is targeting 12%-15% top line growth (13% previously), with 9%-12% growth in security (10% previously) and 18%-22% in IoT (20% previously). We don’t quite expect it to reach these targets through fiscal 2026. It increased its gross margin expansion goal to 2% per year, which aligns with our model for the most part, and reiterated positive non-GAAP earnings and free cash flow in fiscal 2025, which we also expect.