BlackBerry Stock: The Successful Shift to Software Means Big Gains to Come

Black Berry
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BlackBerry – A Familiar Name But Totally Revamped Business

I’m pretty sure the majority of you don’t currently own a smartphone made by BlackBerry Ltd (NYSE:BB). That’s because the company has transformed under the tutorage of CEO John Chen; it is shifting its focus away from smartphones (a great move) and moving to become a key provider of enterprise software focused on advanced security within the Internet of Things (IoT) and autonomous vehicles segments.

The market has rewarded BB stock with an impressive 87% gain over the past year, which easily beat the 49% advance from rival Apple Inc. (NASDAQ:AAPL).

Black Berry Stock Chart Price

Chart courtesy of StockCharts.com

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I’m pretty sure that the majority of you didn’t bet on BlackBerry stock to outperform Apple.

In my case, I have been bullish on BlackBerry ever since John Chen took over in 2013. I was cautiously confident that Chen could work his magic as he did when he turned Sybase around in the late 1990s and sold the company for billions.

BB Stock Rebounds on Transformation to Software

BlackBerry is no longer known for its smartphones, albeit its devices are largely sold in some emerging markets.

BlackBerry launched its “Jarvis” cloud application that can be used to scan binary codes in the software of vehicles to prevent hacks and cyberattacks. The software would obviously benefit in an era of potential attacks on autonomous vehicles.

BlackBerry launched its “Jarvis” cloud application that can be used to scan binary codes in the software of vehicles to prevent hacking and cyberattacks. The software would obviously benefit the threat of potential attacks on autonomous vehicles.

The demand for BlackBerry software was recently demonstrated by the company’s venture with Chinese heavyweight Baidu Inc (ADR) (NASDAQ:BIDU), that will see the two companies work on autonomous vehicles.

The metamorphosis of BlackBerry is seen in its financials, with its key “Enterprise Software and Services” segment generating about 41.27% of total revenues in the fiscal third quarter, versus 38.33% in the fiscal second quarter. “Software and Services” revenue represented 88% of revenue, or $199.0 million in the fiscal third quarter. (Source: “BlackBerry Reports Record Software and Services Revenue for the Second Consecutive Quarter in Q3 Fiscal 2018,” BlackBerry, December 20, 2017.)

If you are wondering about the smartphones, BlackBerry recorded a mere $9.0 million from them in the third quarter, versus $16.0 million in the second quarter, and $62.0 million in the second quarter of fiscal 2016.

In my previous commentaries on BlackBerry stock, I was hoping that Chen would give up on the smartphone business, and this looks to be the case.

With a healthy $2.42 billion in cash and $816.0 million in debt on the balance sheet, BlackBerry has the resources and time to accelerate its hugely successful transformation.

Analyst Take:

Kudos to Chen, as BlackBerry stock has again become relevant in the technology sector. The high profit margin of 38% and the return on equity of 16% reflects how well BlackBerry is doing for shareholders.

BlackBerry stock looks to be a keeper, for much higher price appreciation on the horizon.