BlackBerry's (BB, Financial) stock continues to decline, dropping 10% today despite exceeding expectations in its Q4 earnings. After a 160% surge from November to mid-February, the stock has now fallen about 40%. BlackBerry has shifted its focus from phone software to cybersecurity and IoT software development, particularly in the automotive industry.
Although approximately half of BlackBerry's QNX revenue comes from outside North America, providing some protection from tariffs, uncertainty about future policies has led the company to lower its QNX FY26 sales estimate. In Secure Communications, which heavily relies on government contracts, BlackBerry is cautious due to uncertainties surrounding DOGE and political changes in Canada, Germany, and other regions. As a result, BlackBerry's Q1 revenue and FY26 top-line outlook fall below consensus, with projections of $107-115 million and $504-534 million, respectively.
- In Q4, BlackBerry reported adjusted EPS of $0.03, surpassing its forecast of $(0.02)-$0.00. Revenue declined by 7.3% year-over-year to $143 million but exceeded its guidance of $126-135 million. The QNX royalty backlog increased to about $865 million, indicating positive business health.
- BlackBerry sold its struggling Cylance cybersecurity division to Arctic Wolf for approximately $160 million in cash and 5.5 million shares of Arctic Wolf. Cylance, acquired for $1.4 billion in 2018, consistently incurred losses. This sale, along with restructuring efforts, allows BlackBerry's Secure Communications segment to progress more efficiently.
- BlackBerry sees significant potential for QNX software beyond the automotive sector, including healthcare, industrial, and robotics. However, its primary exposure remains in the automotive industry, where tariffs are a concern. The company has not experienced major supply chain issues and works with almost every major OEM globally, providing some protection from U.S.-specific impacts. Nonetheless, the situation remains fluid.
- Secure Communications also faces challenges due to federal policies, with about 25% of its revenue coming from U.S. government contracts. Although no significant impacts have been noted, the company remains cautious due to uncertainties in renewals and contracts.
BlackBerry faces challenges from tariffs, a new U.S. administration, and international political changes, along with ongoing macroeconomic headwinds. These factors contribute to investor caution, potentially limiting stock rallies in the coming months.
