BlackBerry Limited, formerly known as Research in Motion (RIM), has a rich history marked by both remarkable successes and notable failures. The company has often been hailed as the pioneer of the smartphone revolution. At its peak in late 2011, BlackBerry had approximately 85 million subscribers worldwide. However, the advent of Google's Android and Apple's iOS platforms significantly impacted BlackBerry's market standing. This impact was clearly reflected in the company's stock price, which plummeted from a high of $147 to around $4.65 in July 2023. The release of the company's first-quarter results sparked a rally in its stock price. But what triggered this rally? And is the optimism surrounding the company's prospects justified? Let's delve deeper to find out.

The surge in BlackBerry's stock price was primarily due to the company exceeding revenue and earnings estimates by a substantial margin. However, it's important to note that a significant portion of this revenue beat was attributed to the sale of the company's patents, which accounted for approximately $235 million of its $373 million revenue. Without these sales, the revenue figure would not be as impressive. Furthermore, investors should be aware that, excluding patent sales, both the company's cybersecurity and Internet of Things (IoT) software revenue declined on a year-over-year basis.

Investors were likely examining sequential trends, seeking a bottom in the downturn cycle and anticipating a pathway to recovery. The company's cybersecurity software products, which are crucial for supporting government devices, saw sequential growth, with $93 million in the May quarter compared to $88 million in the quarter ended February. While this is still lower than the $113 million seen in the same quarter the previous year, the expectation that its cybersecurity revenue has bottomed out can be seen as a positive sign, given that this is the largest segment of BlackBerry. However, the company's IoT revenue struggled, declining 11.8% year-over-year and a larger 15.1% quarter-over-quarter.

Based on the company's numbers for fiscal 2023, BlackBerry trades at approximately 4.13 times sales. While the company did not report GAAP earnings, it posted a modest adjusted (non-GAAP) earnings per share (EPS) of $0.06 last quarter. This is not expensive for a software stock. However, BlackBerry is not a pure software play, as it is still exhibiting year-over-year declines. Even though the sequential growth in cybersecurity revenue was a significant positive, investors should be concerned that BlackBerry is still posting annual falls. The company's uncertain profitability makes it challenging to assert that the company holds value.

Over the past decade, BlackBerry has successfully reinvented itself as a cybersecurity and IoT software company. This strategic shift has helped offset its loss of the smartphone market. To accelerate this transformation, the company stopped manufacturing its own first-party hardware in 2016 and acquired cybersecurity company Cylance in 2019. In addition to these measures, the company divested some weaker businesses. This strategy has been beneficial in every aspect, as it prevented BlackBerry from going bankrupt.

Supporters of the company argue that the market should not view the new BlackBerry in the same light as the old BlackBerry. The company's largest segment is now cybersecurity, which has seen sequential improvements. Therefore, BlackBerry should be compared with other cybersecurity companies such as CrowdStrike. BlackBerry's cybersecurity portfolio, which generated approximately 63% of the company's revenue in fiscal 2024 (that ended on Feb. 28), and CrowdStrike both monitor network endpoints for potential threats using a combination of AI tools and human analysts. However, the main difference is that Cylance deploys services using on-site appliances and cloud-based services, while CrowdStrike delivers services through the cloud, making it simpler, cheaper, and easier to scale.

BlackBerry's cybersecurity business, which generated most of its revenue from Cylance, only brought in $418 million in revenue in fiscal 2024. This represents a 12% decline from the $477 million in revenue in 2023. BlackBerry attributed this decline to macro headwinds that led many companies to cut back on software spending. However, CrowdStrike faced similar macro headwinds and still managed to grow its revenue by 54% to $2.24 billion in fiscal 2023 (that ended on Jan. 31). For the next fiscal year, CrowdStrike expects its revenue to increase by another 34% to 36%. Analysts predict that CrowdStrike will be able to compound its revenue at 30% from fiscal 2023 to fiscal 2026. According to these projections, the company's annual revenue is expected to more than double to $4.91 billion in just three years. In contrast, BlackBerry is only expecting its total revenue to compound at 12% – 15% over fiscal 2023 to fiscal 2026.

Therefore, BlackBerry's cybersecurity business is unlikely to match CrowdStrike's business in the coming years. BlackBerry is expected to rely more on the secular expansion of the connected vehicle market and uncertain patent sales to offset the subdued growth of its cybersecurity business. This will be its strategy moving forward.