[DD] Analysis on Blackberry ($BB) The market thinks it's a legacy software company. I think it's becoming critical infrastructure.
**Position:** Long BB
**Disclaimer:** I own shares. This isn't financial advice. Feel free to critique
When people hear Blackberry, they still think phones, keyboards and a failed turnaround.
This is no longer the case.
Today Blackberry is primarily:
1. QNX
2. Secure Communications
After selling Cylance, the company became far cleaner financially and removed one of its biggest money-losing businesses.
QNX isn't just another operating system. It is one of the few operatins systems certified for ASIL-D, the highest automotive safety standard.
That matters because modern vehicles cannot simply swap in another OS once they're certified.
To give you some statistics:
* There are 275+ million vehicles deployed on QNX
* around $950M royalty backlog
* 84% gross margins
* growing double digits: in the past 5 days $BB went from 8,80 USD to 12,50 USD at the time of writing
Most people don't fully understand why QNX matters so much, I'll attempt to explain as best as I can.
Cars are basically becoming computers on wheels. OEMs (Original Equipment Manufacturers - companies that sell parts or products that then get rebranded under a different company name) make money after a car is sold through subscriptions, ADAS (Advanced Driver Assistance Programs) and OTAs (Over The Air updates). Alot of abbreviations but what does it actually mean? I'll give you some examples:
\-GM already generates billions annually fdrom OnStar and Super Cruise.
\-Ford charges recurring subscriptions for BlueCruise
\-The software economy is growing much faster than vehicle production itself.
**QNX sits underneath much of that software stack which means there is alot of potential in the earnings model**
Todays model:
Manufacturare builds a vehicle -> Blackberry collects a royalty -> Done.
The model I predict for the future:
Vehicle generates authenticated safety events -> Those events flow through QNX -> Blackberry bills these events.
To explain more clearly: Imagine every time someone emergency brakes, or an airbag is deployed or road slip sensors go off. These are events logged by QNX and then immediatly transferred as warnings into nearby cars / self driving cars potentially increasing road safety by a huge margin. Blackberry can bill these actions through as a servicemodel or a variation of it.
I'm not saying it will go exactly like this but this is one potential model out of many which management can tap into. If they do it could be a complete gamechanger.
I understand it is a big assumption and therefore a big risk. However this is not the only reason why I'm long on BB.
QNX isn't just embedded into the consumer vehicles market. It is also widely used in the Defense Sector.
QNX is in highly important equipment like submarines, aerospace, NASA missions, drones and also government systems.
Whether or not this will become a source of income remains to be seen but the fact is that analysts are largely ignoring this aspect so far.
**What else?**
[QNX is collaborating with NVIDIA](https://engineerlive.com/qnx-and-nvidia-enhance-safety-critical-edge-ai/) in developing safety-critical AI robotics. Yet another potential revenue stream. Again showcasing the necessity of QNX. As time goes on and the success of AI automation continues, I can not really imagine a future where QNX is not in it.
Once more, this aspect is completely ignored by Wallstreet analysts leading to the stock being massively undervalued.
Regardless of what management decides to do, QNX has so much potential.
The market states that Blackberry is a declining royalty company
My view on it is that Blackberry is currently evolving into an embedded infrastructure company across several industries.
If the market continues pricing only today's royalties, the stock will remain cheap.
However, if recurring software revenue expands into connected vehicles, robotics, defense or data services, then todays valuation could prove far too low.
**RISKS**
This is absolutely not a risk-free investment.
The biggest risks are:
\*OEM's develop their own middleware (this seems unlikely since the cost to get those certifications are immense)
\*Vehicle data monetization never materialises
\*Defense programs takes years to produce revenue (I'm long anyway)
\*Robotics remain mostly hype (there has been much progress over the years but who knows)
\*The market keeps thinking of $BB as a memestock and nothing else
This entire theory depends on the implementation of revenue generating actions, not just sticking with the technology itself.
I will become much more bullish if management begins reporting meaningful recurring revenue from vehicle data services, defense software, robotics, etc..
**TLDR;**
Wallstreet still values BB as a meme company that collects small royalties whenever a car is built.
I believe that's an outdated take which doesn't factor in potential upsides to QNX.
Blackberry has quietly transformed into a safety-certified embedded software company with exposure to several long-term growth markets:
* Software defined vehicles
* Autonomous driving
* Connected vehicle data
* Defense systems
* Robotics & physical AI
* Industrial automation
* Secure communications
If even a fraction of these addition revenue streams materialize then BB could be worth much more than it is today.
Thank you for reading to the end.