In line with my previous assessment, BlackBerry’s (BB) QNX unit performed very well last quarter, driven by increasing royalties generated by its namesake operating system.
And QNX’s strong performance enabled the company’s Q2 results and its guidance to surpass the Street’s expectations significantly, pushing the shares much higher.
Primarily due to QNX’s strong performance and its huge potential, I remain bullish on BlackBerry (BB) stock.
Also noteworthy is that BlackBerry’s Secure Communications business showed some notable “green shoots.”
But one point that seems to be missing from the recent, largely bullish reporting on BB is the key role that Tesla’s (TSLA) struggles could play in boosting BlackBerry’s fortunes over the longer term.
Let’s take a look at the latter issue first.
Why Tesla’s Woes Could Help BlackBerry
BlackBerry has noted that QNX has been utilized by 24 of the world’s 25 top electric-vehicle (EV) makers. And according to multiple reports, Tesla is the one EV maker on the list that does not use QNX.
Tesla has been losing meaningful market share in its three main markets – the U.S., Europe, and China –for many months, and the multi-billionaire’s decision to leave government does not seem to have helped matters much.
In the U.S. EV market, Tesla’s share of the EV sector reportedly reached a record low recently. The company reported better-than-expected deliveries for the third quarter recently, but the results are unlikely to change its market share much since other brands also probably got big boosts due to the expiration of the EV tax credits in September. Moreover, the quarter’s results are probably a one-time phenomenon as a result of the tax-credit expiration. In Europe in August, the automaker’s sales slid a huge 37% versus the same period a year earlier, and in China, registrations of Teslas fell 4% year-over-year in August, including exports, even though the Chinese EV market is reportedly “booming.”
Cumulatively, it’s clear that BlackBerry’s customers are gaining significant market share at Tesla’s expense. Assuming that trend continues, it should meaningfully boost BB’s top and bottom lines over the long term, since Tesla reportedly does not utilize QNX and all of the other top EV makers do.
QNX Is Already Performing Very Well
In BB’s fiscal second quarter that ended in August, the QNX unit’s revenue advanced a strong 15% versus the same period a year earlier to $63.1 million, while its EBITDA, excluding certain items, came in at an impressive $20.5 million. Moreover, the firm raised its full-year guidance for QNX’s revenue from $256 million to $270 million, and now expects that the unit’s sales will come in at $66 million to $70 million for the current quarter.
And under its current CEO, John Giamatteo, BB frequently exceeds its guidance projections, making it likely that the unit’s revenue this quarter could easily wind up being over $70 million. Such a development, in turn would suggest that the unit does indeed have a great deal of momentum.
Also importantly, Giamatteo noted on the company’s Q2 earnings call that the pipeline of the latest version of QNX is still increasing and remains divided equally between auto and non-auto customers. This indicates that the operating system’s use by industries other than the auto sector may be continuing to expand quickly.
And suggesting that BB continues to have significant momentum among leading automakers, the CEO noted that the firm had obtained a deal worth about $15 million “in the Chinese market with a leading global tier-one supplier to power ADAS applications,” while BMW and Qualcomm (QCOM) had launched Snapdragon RidePilot.
According to Giamatteo, the latter product “enables an active safety system that is continually updated with cloud-based information from global fleets.”
Finally, boding well for QNX’s future as an OS in robots, the software will be used by “a leading North American camera and vision module supplier…globally in automated mobile robots and subsequently in humanoid robotics,” the CEO reported.
Secure Communications Shows Some Green Shoots
A “key (German) government agency” made a five-year deal with BlackBerry for its SecuSmart mobile-communications security system, while SecuSmart for the first time is being used extensively on iOS devices, Giamatteo stated.
Further, the U.S. State Department agreed to increase the extent to which it utilizes the firm’s emergency-notification system as part of a new deal for the offering, and the Coast Guard and Department of Veteran Affairs made new deals involving the system.
Finally, a Canadian government agency agreed to utilize SecuSmart, and the number of customers leaving BlackBerry’s UEM offering dropped.
The Bottom Line on BB Stock
QNX is growing rapidly, and amid Tesla’s issues and the unit’s other positive catalysts, its growth could very well surge tremendously over the long time. Meanwhile, there are reasons to be cautiously upbeat about the Secure Communications unit.
Consequently, I believe that BB’s price-book ratio of four is quite low, making the shares appear to be a good opportunity for long-term growth investors.
*This article is intended to be informational only; it is not financial advice.
