No-Moat BlackBerry Has Some Stickiness

We have taken a fresh look into BlackBerry BB and assign the company with a no-moat and stable moat trend rating. We are lowering our fair value estimate for BlackBerry to $7.60 per U.S. share (CAD 10 per Canadian share) from $9.50 (CAD 12.50) but still foresee a margin of safety for investors today.

BlackBerry is a software provider selling primarily into applications of the Internet of Things. The firm's flagship product is the Enterprise Mobility Suite, which is a unified endpoint management, or UEM, solution giving enterprises a simple interface to see and control access to applications and devices on their networks. The firm is also a leading embedded software provider, focused on the automotive industry. Its QNX software powers infotainment systems, where it leads the market, as well as electronic control units and advanced driver-assistance systems, or ADAS. Overall, we think BlackBerry has positioned itself in rapidly growing markets that should help sustain a return to top line growth.

BlackBerry's forte is security, with an explicit goal of providing end-to-end secure enterprise communication--just about the only constant between their current business model and the now-retired handset model that made it a household name. Since CEO John Chen took over in 2014, he has successfully pivoted BlackBerry to a software model, and it will experience its first year of revenue growth in nine years in fiscal 2020. The pivot, now squarely in the Canadian company's rearview mirror, has been fueled by acquisitions, namely the $425 million deal for Good Technology in 2015 that catapulted BlackBerry into the number 2 market share of UEM, and the $1.4 billion Cylance acquisition in 2018 that gave BlackBerry a foothold in the endpoint protection market.

While we don't think BlackBerry is worthy of a moat, as are some of its larger competitors in the endpoint management and security spaces, we think the Cylance integration may enhance the stickiness of its products, and further its end-to-end capabilities. For the time being it appears BlackBerry will be content to focus on organic growth and the Cylance integration, but we think it will continue to rely on inorganic growth in the future to expand and complement its product portfolio. BlackBerry will also seek out further opportunities in autonomous vehicles with its QNX software, as the space presents greater safety/security needs on the part of OEMs, as well as greater content per vehicle for QNX.