BlackBerry: Strategic Review Offers Hope of Exit From Cybersecurity Woes

We maintain our $4.90 per share fair value estimate for BlackBerry BB after the firm’s board announced a strategic review on May 1. In our view, a strategic review is a welcome development following years of underperformance for the firm’s cybersecurity business. We reiterate our view that the QNX business is healthy, competitive, and primed for robust growth, while the cyber business is a market laggard losing share. Shares popped 8% following the news, but we continue to guide investors toward moatier, lower-uncertainty names in software.

The strategic review bears no timetable, and offered up separation of BlackBerry’s businesses as a potential alternative under consideration. The board maintained belief in the company’s strategy, but pointed to a lack of market belief as reason for pursuing the review. The firm reaffirmed intentions to go forward with the ongoing patent sale announced in March 2023.

We see the most likely result of the review being a sale of the cybersecurity franchise and focusing on the Internet of Things (containing QNX) business. The cyber business wouldn’t command a steep price in our view, but would offer a willing buyer a small portfolio of durable, sticky government clients (likely at a steep discount). We also believe the standalone IoT business, selling QNX software into cars and industrial machinery, could merit a steep multiple from shareholders. It’s a business we expect to grow 15% over the next 10 years, and plays into attractive trends like autonomous driving. We don’t see many logical buyers for the more attractive IoT business, given impartiality with carmakers is vital, but Amazon (with whom the company partners for its IVY platform) would certainly have the capital. We would be disappointed if BlackBerry consolidated around its cyber business, though potentially more organizational focus could help improve wallowing execution.

We expect minor additional detail at BlackBerry’s upcoming Analyst Day on May 17.