If trends in the automotive sector play out as planned, Canadian tech company BlackBerry (BlackBerry News, Stock Quote, Chart TSX:BB) and its QNX software platform should have a bright future ahead in the connected car market. But for right now, investors may want to sit on the sidelines, says Bryden Teich of Avenue Investment Management, who claims he’d like to see more of the company’s growth prospects reflected in its financials.
“I think that what they’re doing is very impressive in regards to what they’re trying to sell into cars going forward,” says Teich, portfolio manager at Avenue Investment, in conversation with BNN Bloomberg on Thursday. “People have to start picturing your car becoming half a computer. I’ve heard the future of cars being referred to as an entertainment console. And so, with BlackBerry’s Internet of Things software, they’re able to sell this now with original equipment manufacturers (OEMs) and the auto manufacturers to be the main software in cars.”
“That’s a nice story to tell but the problem is that none of that is in the numbers now and so their legacy business is still challenging,” he says.
Earlier this year, BlackBerry CEO John Chen declared the company’s turnaround from erstwhile handset maker to software and security business all but complete, saying that the proof is in the company’s projection for year-over-year growth in every quarter of its current fiscal year.
“When you deem a turnaround successful, that means the business has to be growing. Now, the growing business is usually not the same business that got the company into trouble in the first place,” Chen said to the Financial Post in March. “From a company that does US$6 billion in revenue but losing money and it’s burning cash, to a company that is over US$1 billion in software (revenue) making money and generating cash, I’d say those would be on my resume.”
But the stock has experienced a lot of volatility in recent years, punctuated by a downward slide over the past few months. BlackBerry released relatively solid numbers in its latest quarter (Q1 of fiscal 2020, delivered in late June), but BB’s share price still dropped, reportedly due in part to concerns over less-than-thrilling results from the company’s cybersecurity segment, fronted by its recently acquired subsidiary Cylance.
“They made the cybersecurity acquisition about a year ago, which I think is doing well but it still takes time for that to get up and running and then get reflected in the numbers,” said Teich. “So, the shares here are still very volatile.”
“It’s not a cheap stock either —you’re looking in the rearview mirror for what the legacy business has been. You’re looking out 12 months to two years and you don’t really have a lot of visibility on what’s actually going to come,” he said.