BlackBerry Earnings: End Markets Remain Challenged but Management Is Guiding for a Rebound

We maintain our $4.90 fair value estimate for shares of no-moat BlackBerry BB after the firm reported fiscal second-quarter results. BlackBerry announced its high-level results earlier in September, and there were no surprises in the official filing. The firm’s cybersecurity business continues to struggle. While the fiscal-year outlook has been modestly lowered for the Internet of Things business, we maintain our long-term confidence in BlackBerry’s QNX software and our view that this is the strong part of the firm. We see shares as fairly valued and would point investors to moatier and more undervalued software names under our coverage.

BlackBerry’s software and services sales, which are the better proxy for firm success following the short-term effects of its patent sale on the top line, declined 21% year over year and 7% sequentially. Cybersecurity sales declined the sharpest, down 15% sequentially. IoT revenue, which includes the QNX business, rose 9% sequentially but dipped 4% year over year. The IoT business is seeing some automakers push out software projects and thus push out revenue for QNX, but we have confidence these are short-term dynamics and management is guiding for strong sequential growth through the rest of the fiscal year.

Management provided an outlook for a meaningfully stronger fiscal second half for the cybersecurity and IoT businesses. Management is maintaining its fiscal 2024 outlook for $425 million-$450 million in cybersecurity sales. We model double-digit sequential growth through the rest of the fiscal year for both businesses.