Blackberry (BB +13%), a software-focused company with IoT and Cybersecurity divisions, saw a significant share price increase after reporting better-than-expected Q1 earnings and sales. Despite ongoing challenges, the company maintained its FY25 outlook. Blackberry, no longer in the mobile hardware business, has undergone several transformations. Recently, it announced plans to split its IoT and Cybersecurity units into two separate entities, with a subsidiary IPO for IoT expected in 1HFY25. However, this hasn't sparked much investor excitement.
BB's shares have been declining for months, dropping by up to 60% since their September 2023 peak. This decline wasn't solely due to internal issues; auto union strikes last year also contributed. Investors are frustrated by BB's inability to convert its strong presence in automotive software into significant revenue or profit growth. The same goes for its cybersecurity software, widely used by large governments and financial institutions.
However, BB's Q1 report may signal a turning point:
- Q1 EPS was $(0.03), and revenue fell by 61.4% year-over-year to $144 million. This drop was due to BB's licensing segment, which sold many patents last year. IoT and Cybersecurity segment revenue remained flat at $138 million.
- Cybersecurity revenue declined by 9% year-over-year to $85 million, still above previous guidance. The company maintained its FY25 Cybersecurity revenue outlook. Despite a tough market, BB saw improvements in ARR and dollar-based net retention rate for the second and third consecutive quarters.
- IoT revenue, driven by BB's QNX software used in various vehicles, increased by 18% year-over-year to $53 million, also beating forecasts. While automotive market conditions are fragile, BB reiterated its FY25 IoT revenue projection. Management remains optimistic about long-term demand, citing growing interest in QNX and a shift towards more software-defined vehicles.
The year ahead may be challenging for BB, with weak demand for cybersecurity software and sluggish consumer interest in new vehicles. However, these headwinds may be peaking, potentially paving the way for growth in FY26.
