At the beginning of this year, I recommended Canadian engineering firm BlackBerry (BB) as “the perfect ambush stock for 2021,” explains Jim Pearce, editor of Investing Daily's Personal Finance.
As I said then, “Blackberry has been down in the dumps so long that most people have forgotten about it. The company is headquartered in Canada and has a market cap of less than $5 billion so it doesn’t get much love from Wall Street.” So far, that prediction is paying off as the stock is up 115% so far in 2021.
Despite that big jump, I still think BlackBerry has a lot more upside potential in it. The company is poised to benefit from two of the biggest growth drivers of the global economy over the next several years: electric vehicle and cybersecurity.
Late last year, BlackBerry announced that it signed a deal with the Amazon Web Services division of Amazon (AMZN) to develop software used in cloud-connected vehicles hosted on Amazon’s cloud.
That product, known as BlackBerry IVY, is described by the company as “a scalable, cloud-connected software platform that will allow automakers to provide a consistent and secure way to read vehicle sensor data, normalize, it, and create actionable insights from that data both locally in the vehicle and in the cloud.”
That data is extremely useful to electric vehicle (EV) manufacturers. In May, Chinese EV carmaker WM Motor announced that it has chosen BlackBerry as its partner to provide the software for its new W6 SUV model.
According to BlackBerry, “The W6 is China’s first mass-produced vehicle that can autonomously perform specific parking maneuvers.” In addition, WM Motor intends to expand the vehicle’s capacity to include autonomous driving functionality.
The growth projections for the electric vehicle markets are astonishing. According to the International Energy Agency (IEA), “In the first quarter of 2021, global electric car sales rose by around 140% compared to the same period in 2020, driven by sales in China of around 500,000 vehicles and in Europe of around 450,000. US sales more than doubled relative to the first quarter of 2020, albeit from a much lower base.”
It is the much lower base in the United States that could be BlackBerry’s salvation. Industry experts predict that EV sales will increase nearly fivefold over the next five years, and that estimate was made before President Biden earmarked $174 billion in his infrastructure spending plan specifically for the EV industry.
The precise details of the financial arrangement between BlackBerry and Amazon were not divulged. Presumably, the terms heavily favor Amazon. Regardless, even a modest percentage of income from this arrangement could have an outsized impact on BlackBerry’s revenue stream for years to come.
The recent shutdown of the Colonial Pipeline and subsequent gas shortages illustrate the need for strong endpoint protection security against hackers.
To that end, BlackBerry offers a suite of cybersecurity solutions under the “BlackBerry Spark” brand name that integrates custom apps, internal systems, and regulatory procedures into a unified endpoint management process to prevent intruders from finding seems to exploit for access to sensitive data.
Cybersecurity is a huge market and it is growing fast. According to Quince Market Insights, “The global cybersecurity market size was estimated to be USD 163.5 billion in 2020 and is projected to register a CAGR (compound annual growth rate) of 12.5% to reach USD 418.3 billion by 2028. The North America market is poised to capture a larger share in the global market for cybersecurity.”
Of course, not all of that global market potential will be accessible to BlackBerry. The company conservatively estimates that its total addressable market (TAM) in cybersecurity is $30 billion this year and $44 billion in 2025.
At the same time, it expects the TAM for its internet of things (IoT) business to expand from $15 billion this year to $45 billion in 2025. That means BlackBerry is expecting the size of the TAMs for its two biggest product categories to nearly double over the next four years.
BlackBerry reported a net loss last year while it was restructuring its balance sheet to support its IoT and cybersecurity initiatives. In April, the company announced that it has reorganized its management team to support its primary business units, which will begin reporting results separately to make it easier for analysts to track their progress.
Those investments should start paying off soon, at which point Wall Street may start paying more attention to the company’s promising future. That day may arrive as early as June 24, when BlackBerry releases its fiscal 2022 Q1 results (ending May 31) along with any guidance for the remainder of the year. I recommend buying BlackBerry up to $16.
