It has been over five years, and the promise of a turnaround has not yet happened for BlackBerry (TSX:BB), the hardware-turned-software company. The company kept losing money, seeing a constant decline in revenue and a ballooning QNX royalty revenue of US$815 million. When will business flourish for this software company?

If you purchased BlackBerry stocks in January 2020, your portfolio has more than halved. It makes the long-term shareholders of this tech company wonder if the worst is over. Are they better off holding some other stock than seeing their money shrink in BlackBerry’s headwinds?

Is the worst over for BlackBerry stock?

Analysts are optimistic as the company offers some of the best quality products trusted by the governments of several powerful nations. BlackBerry even has a new chief executive officer (CEO) who is restructuring its operations and giving line managers more decision-making power to drive the success of their segments. The company aims to generate positive operating cash flow in the March 2025 quarter.

Note that positive operating cash flow doesn’t mean profits. This means that the company will not have to burn cash anymore. At the end of March 2024, BlackBerry’s balance sheet showed some concerning trends. Its cash reserves and short-term investments fell 44% from US$426 million to US$237 million, even after the company sold licensing patents for over US$200 million.

Although BlackBerry has no significant debt, it has been funding its losses with cash reserves. Given that it reported a net loss of US$130 million in fiscal 2024, it barely has the cash to survive around two years of losses.

IoT revenue

While BlackBerry is seeing QNX design wins, the fact remains that the company continues to burn cash. The first two quarters are seasonally weak for the Internet of Things (IoT) segment. So, you can expect more revenue declines in the September quarter.

And the US$815 million QNX royalty backlog is not an asset. This royalty revenue will only be unlocked if automakers using BlackBerry’s QNX software produce vehicles. And with the electric vehicle (EV) sales pullback, the design wins are only piling onto the royalty revenue. And there seems to be no signs of EV sales revival anytime soon. You could see some uptick in the IoT segment in the second half of fiscal 2025, ending March 2025, but it may not have much impact on the overall company’s performance as it accounts for only 25% of the revenue.

Cybersecurity revenue

BlackBerry is still waiting for cybersecurity demand to revive, as this segment accounts for more than 60% of its revenue. Cybersecurity revenue has been on a decline since 2021. The company operates in a highly competitive market. While it has quality products, it does not attract many new clients. It relies heavily on contract renewals to keep the segment going.

Management has not disclosed any action plan or long-term target to boost cybersecurity revenue. It is relying on IoT and the QNX royalty for growth. While BlackBerry has the potential to grow in the long term, the worst is not yet over for the software giant.

I was wrong about BlackBerry

Fiscal 2025 could see a further decrease in cash balance and revenue. However, losses could narrow as the company’s restructuring reduces operating expenses. The only positive for BlackBerry at the moment is the QNX royalty backlog.

The declining fundamentals and a strong future roadmap made me change my stance on BlackBerry from bullish to bearish. Until there is some positive change in the fundamentals and an upward revision in revenue, I would remain bearish on this tech stock.

Instead, you could invest in stocks with better fundamentals and profits. Some interesting stocks to consider are Magna International and Descartes Systems.

The post Is the Worst Over for BlackBerry Stock? appeared first on The Motley Fool Canada.

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Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Descartes Systems Group and Magna International. The Motley Fool has a disclosure policy.

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