BlackBerry

BlackBerry reported upside to its August-quarter guidance and raised its fiscal 2027 outlook. Strong results included a one-time licensing win, but the underlying business still came in at the high end of guidance. Core software and services revenue rose 15% year over year to $141 million.

Why it matters: QNX, the firm's primary growth engine, continues to perform extremely well. We like BlackBerry's position in next-generation vehicle architectures, including those with higher software content and more autonomous driving features. BlackBerry's first Alloy Kore design win includes over $100 million in future revenue, likely materially adding to revenue closer to calendar 2029. We see Alloy Kore as the firm's latest offering for foundational automotive software, enabling content gains and durable attractive growth. Investors should appreciate BlackBerry's continued financial execution and improving profitability. Non-GAAP operating margin rose 9 points year over year and more than 5 points sequentially to 26.3%, and the firm's net cash position and improving cash generation are admirable.

The bottom line: We raise our fair value estimate for no-moat BlackBerry to $6.60 per share, from $5.20, behind a higher medium-term QNX growth forecast, supported by incremental growth from Alloy Kore. Shares remain moderately overvalued to us after great performance in 2026 thus far. BlackBerry shares have more than doubled in 2026, with the market perception of the stock improving about its automotive opportunity and financial performance. We agree with the bulk of this appreciation but still think the stock has overshot where fundamentals sit today. QNX growth and operating leverage are the key valuation drivers. We model high-teens QNX growth over five years and operating margin expansion to the low-30% range. To justify the market price, we'd have to assume 20% growth and nearing 40% operating margin in that time frame.

The one point of caution in the quarter was BlackBerry trimming its Secure Communications revenue guidance in response to uncertainty surrounding US and Canada trade tensions of late. Management was clear that it has seen no slowdown in deal activity but is adding caution to the timing of deals closing over the next two quarters, which we see as prudent. We don't worry about BlackBerry's position in US federal government customers long term, but this added note of caution is likely behind the moderate 4% selloff intraday Sept. 24.

Still, QNX is growing enough that total firm guidance came up across the top and bottom lines. For the full year, BlackBerry expects $626 million in revenue at the midpoint, up from $608 million, and implying 14% growth. Adjusted EBITDA margin is now implied at 24%, up from 21%. We believe the updated targets are achievable and likely bear upside if Secure Communications deals get closed on time.

Our fair value estimate for BlackBerry is $6.60 per share. Our valuation implies a fiscal 2027 enterprise value/ sales ratio of 6 times, and a fiscal 2027 adjusted price/earnings ratio of 33 times. Against our fiscal 2028 and 2029 earnings forecast, our valuation implies multiples of 27 times and 22 times, respectively.

We forecast compound annual revenue growth of 11% for BlackBerry through fiscal 2031. We expect higher growth out of BlackBerry’s QNX business, in the high teens over the next five years. We believe BlackBerry’s embedded software solutions for cars and industrial applications are strong and increasing software penetration in vehicles will drive growth. Moves from lower-value infotainment applications into higher-value autonomous driving and digital cockpit applications should lead to a large step function in content per vehicle. We project this business to make up the majority of revenue and profits going forward. We expect lower growth for BlackBerry’s secure communications business, which has a strong position in regulated government customers and offers a low, but stable, growth opportunity.

We anticipate BlackBerry’s margins to improve with volume and a rising mix of QNX sales, where we think it holds the highest operating leverage. We expect gross margins to reach 80% by the end of the decade. We see fiscal 2031 non-GAAP operating margin reaching the low 30% range, up from 17% in fiscal 2026, primarily off of volumes over slower-growing operating expenses.

We don’t believe BlackBerry has an economic moat. BlackBerry benefits from switching costs for its software products, but these have yet to translate into pricing power or economic profits for the firm. We would have to see significantly improved profitability on a durable basis for BlackBerry to earn a moat.

BlackBerry’s primary offerings are secure communications software for enterprises and embedded software for cars and industrial equipment. The firm’s secure communications portfolio has good placement in highly regulated entities like financial institutions and governments. Here, BlackBerry’s portfolio is mainly unified endpoint management for employee devices, event management for crisis communication for first responders, and highly secure applications for top-secret communication in government. In automotive, BlackBerry’s base-level software provides a secure foundation, on top of which automakers can safely build infotainment and safety systems.

In software, we typically see switching costs as a moat source. Switching costs exhibit themselves when enterprises embed a software deeply in daily workflows and the software requires a significant overhaul to replace. Usually, tangible switching costs include the time to train employees and create new processes, along with the monetary cost of running two software products simultaneously during the transition.

We see elements of switching costs across both of BlackBerry’s software businesses. In secure communications, BlackBerry’s highly regulated customer base is more averse to switching processes than a typical enterprise customer. Dealing with top-secret communications creates a significant cost to any potential product failure (like vulnerability to hacks) and makes customers more likely to retain a well-performing product, in our view. In automotive, we see longer product lifecycles of five to seven years creating a durable revenue stream for BlackBerry. In particular, BlackBerry’s software may underpin multiple car families from a given automaker, which can make it harder to replace for a competitor.

Nevertheless, we fail to see adequate monetization or profitability from BlackBerry for these products to prove moaty. In our opinion, BlackBerry serves relative niches in software. While we view the firm’s software portfolio positively, these markets provide low monetization, shown by small revenue bases and low profitability historically. We believe BlackBerry needs considerable organic investment to maintain its positions and grow, which erodes its profitability and economic moat. BlackBerry’s gross margin profile is decent for software, but we see its operating profits as well below moaty peers'.

BlackBerry will be more focused following the recent divestment of its cybersecurity business, and we expect profitability to improve over the next 10 years for both secure communications and embedded software. Still, we foresee a long runway before earning economic profits, considering the firm’s level of organic investment. If BlackBerry exhibits a more rapid pace of profit expansion or growth, we would consider a moat rating in the future. For now, we lack confidence in low-profit businesses generating durable economic profits over the next decade.

BlackBerry is the leader in embedded automotive software, with its solutions spanning most global OEMs and holding the highest security certifications.

BlackBerry’s focus on secure communications gives it an advantage in regulated industries, like government, healthcare, and financial services.

BlackBerry IVY—the result of a partnership with Amazon Web Services—could create a revolutionary software ecosystem for connected vehicles, allowing OEMs to process, analyze, and monetize massive amounts of vehicle data.

BlackBerry spends a significant amount of capital on inflated operating expenses, and it will take time to trim these and gain profitability.

BlackBerry carries vestiges of its decade-long transition from a handset business on its balance sheet, compressing economic profits.

BlackBerry benefits from a focus on small market niches. If a larger, well-capitalized competitor were to encroach on these corners of the market, it would face substantial risk to growth and market share.