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BlackBerry is in a world of hurt, RBC says

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The task for its new CEO will be daunting, says RBC analyst Paul Treiber of BlackBerry (BlackBerry Stock Quote, Chart, News, Analysts, Financials NYSE:BB)

On December 20, BlackBerry reported its Q3, 2024 results. The company posted Adjusted EBITDA of (US) $18-million on revenue of (US) $175-million a topline that was up four per cent over the same period last year.

“This was a good quarter for BlackBerry. Our IoT business delivered solid revenue growth and continued its impressive design win momentum. We showed particular strength in Automotive, especially in ADAS where we continue to expand our market position,” said new CEO John J. Giamatteo. “We also saw a strong quarter for the Cybersecurity business, securing large strategic deals with leading government agencies that helped drive strong sequential revenue growth and margin expansion. Work has commenced to fully separate and significantly rightsize our businesses, and we expect to further reduce operating cashflow usage in Q4.”

In a research update to clients December 21, Treiber maintained his “Sector Perform” rating but cut his price target on BlackBerry from (US) $4.50 to $4.00.

The analyst says BlackBerry faces a myriad of concerns and its hard for investors to make sense of the jumble.

“Visibility has declined further,” the analyst said. “Although Q3 Cybersecurity revenue was healthy (up 8 per cent year-over-year to $114-million, matching consensus), it reflects contribution from a large license contract. BlackBerry’s reduced Q4 Cybersecurity outlook and soft KPIs like ARR (down 13 per cent year-over-year), net revenue retention (82 per cent), and deferred revenue (down 3 per cent year-over-year) are visible indicators of the challenges the business continues to face. For IoT, the reduction in BlackBerry’s Q4 outlook reflects both near-term headwinds (i.e. reduced auto production) and delays regarding new investments (i.e. developer seats, services). BlackBerry is continuing with the separation of IoT and Cybersecurity, which could lead to ‘optionality’ such as a divestiture or spin-off. While these corporate actions may be potentially value creating, it raises uncertainty regarding BlackBerry’s future, in our view.”

As reported by the Globe and Mail, Treiber today reduced his 2025 revenue estimate on BB from $725-million to $638-million.

“BlackBerry remains in the midst of its turnaround and the split of the company into two standalone entities has just begun,” he concluded. “However, near-term visibility to growth and improved profitability is low. Pending improved visibility to near-term growth and profitability, we believe BlackBerry’s IoT and Cybersecurity businesses will continue to trade below peers.”

At press time, shares of BlackBerry on the NYSE were down 13 per cent to $3.565.

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