We came across a bullish thesis on BlackBerry Ltd (BB) on ValueInvestorsClub by ma1ibuman. In this article, we will summarize the bulls’ thesis on BB. BlackBerry shares were trading at $3.47 when this thesis was published, vs. closing price of $2.35 on Aug 29.
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BlackBerry, once known for its iconic smartphones, has transformed into a key player in the cybersecurity and IoT (Internet of Things) sectors. The company has three main segments: Cybersecurity, IoT, and Licensing. Recently, Blackberry made a strategic decision to sell off its non-core patents under the Licensing segment through the Malikie transaction, which brought in $228 million in one-time revenue and future royalties capped at $700 million. This move was essential, allowing the company to clean up its balance sheet and focus on its core businesses, making it more appealing to investors.
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Under the leadership of its new CEO, John Giamatteo, Blackberry is at a pivotal moment. Giamatteo, who previously led the company’s Cybersecurity segment, is well-suited to steer Blackberry into its next chapter. His approach contrasts sharply with that of his predecessor, John Chen, whose numerous board positions may have divided his focus. Giamatteo’s experience, including a stint as Chief Revenue Officer at McAfee, positions him to deliver significant value to Blackberry’s shareholders.
One of Giamatteo’s top priorities is splitting up the Cybersecurity and IoT segments, along with cutting corporate overhead. This includes simplifying legal entity structures, reducing cybersecurity general and administrative expenses, optimizing IT back-office functions, and streamlining the company’s go-to-market strategy. These efforts have already shown positive results, with Blackberry halving its negative free cash flow in the most recent quarter. The company is confident it can achieve free cash flow profitability in the near term.
What makes Blackberry’s turnaround particularly compelling is that the Cybersecurity business is beginning to show signs of growth. After a challenging period of M&A integration and macroeconomic headwinds, the division’s dollar-based net retention rate improved from 82% to 85% in the most recent quarter, indicating that growth is on the horizon. The IoT segment is also gaining traction, with QNX royalty backlog growing 27% year-over-year.
Investors should take note of Blackberry’s potential for rerating as it fully separates its IoT and Cybersecurity segments, cuts operational expenses, and reaches free cash flow profitability. At roughly 3X sales, Blackberry offers a recurring revenue business with improving fundamentals and a net cash balance sheet. With the added possibility of retail investor enthusiasm, this stock offers a highly attractive risk/reward profile.
BB is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 15 hedge fund portfolios held BB at the end of the first quarter similar to the previous quarter. While we acknowledge the potential of BB as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as BB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.