BlackBerry Limited (NYSE:BB) has already completed perhaps the most difficult part of its transformation: pivoting from a smartphone maker into a software company. Apple forced that pivot as iPhones steadily eroded BlackBerry’s market share.
The company’s comeback story has drawn growing attention from investors. In a recent analysis, Jim Cramer on BlackBerry (BB): “I Am Surprised That It Came Back Down” examined the stock’s recent performance and the factors behind renewed investor interest.
But investors are now paying a much higher price for that transformation.
BlackBerry’s QNX automotive software business is growing rapidly. But the valuation requires that growth to continue for years.
QNX is doing exactly what BlackBerry investors hoped—but weakness elsewhere could complicate the comeback. [See what changed.]
At the September 30 closing price of $9.04, BlackBerry had a market cap of about $5.3 billion. After accounting for cash and investments and convertible notes, its enterprise value was around $5.3 billion.
Now, BlackBerry is expecting to generate adjusted EBITDA of between $141 million and $158 million in fiscal 2027. At the midpoint of that forecast, the stock trades at roughly 35 times forward EBITDA.
QNX Is Driving the Earnings Growth
QNX is increasingly important to that valuation. The division produced revenue of $80.3 million in Q2, representing 27% YoY growth. Adjusted EBITDA increased 41% to $29 million.
QNX is expected to generate revenue of between $315 million and $325 million in fiscal 2027. Adjusted EBITDA is expected in the range of $95 million to $105 million. At the midpoint, those projections indicate that QNX would account for about half of BlackBerry’s consolidated revenue and roughly two-thirds of adjusted EBITDA.
The QNX business has attractive economics. In Q2, the division’s adjusted gross margin was 87% and adjusted EBITDA margin was 36%. The business also has a growing opportunity to increase software content per vehicle in addition to higher vehicle production.
BlackBerry Limited says around 90 million vehicles are produced globally each year. But only about one-third of those vehicles have the high-performance centralized computing architectures where QNX is most relevant. BlackBerry says that proportion could reach three-quarters over the next five years. That would more than double the addressable vehicle base.
At the same time, multiple QNX deployments in the same vehicle can increase revenue per vehicle.
What Does Today’s Valuation Require?
If you valued the entire BlackBerry enterprise solely against QNX’s FY2027 adjusted EBITDA, the company would be trading at about 53× QNX’s expected EBITDA. At 20× EBITDA, QNX would need to make $265 million of EBITDA to justify the $5.1 billion enterprise value.
Of course, these are not estimates of QNX’s fair value. But they are a way of showing what the current price requires.
Notice that even at a 30× EBITDA multiple, which already is a huge premium to the roughly 11× forward EBITDA median for productivity software companies, QNX would need to increase EBITDA by about 70% from BlackBerry’s current fiscal 2027 midpoint. At 25×, EBITDA would need to double.
However, the other businesses provide some cushion. BlackBerry expects its Secure Communications segment to produce $50 million to $58 million of adjusted EBITDA in fiscal 2027, and Licensing business about $36 million. So QNX does not have to justify the entire $5.1 billion enterprise value by itself.
However, the valuation still depends heavily on QNX becoming significantly larger than it is today.
The Opportunity Is Real, But So Is the Valuation Risk
There are reasons QNX could achieve robust growth.
BlackBerry Limited says some previously secured automotive programs are now entering production. That would enable higher software content to translate into royalty revenue. BlackBerry’s new Alloy Kore platform could also increase ASP per vehicle by multiples. The first Alloy Kore design win with Coretura is expected to add more than $100 million to QNX’s royalty backlog.
However, the backlog is not the same as current revenue. Furthermore, BlackBerry itself says there will be a lead time before most of the Coretura award translates into royalties.
There you have the valuation risk. Investors are not simply betting that QNX will grow. They are paying for an enormous portion of that future growth today.
Hedge Fund Backing Broadens as Short Sellers Firm Up
According to the Insider Monkey database, hedge funds holding BlackBerry Limited increased to 31 in Q2 from 19 in Q1. D.E. Shaw increased its position 3,510% to more than 13.3 million shares to become the largest holder. Funds of billionaires Ken Griffin and Jim Simons also increased their stakes. Short interest in BlackBerry edged up a little to 6.4%, from 6.2% in the previous reading.
The company has an opportunity to increase QNX software content embedded in each vehicle. If that higher software content converts into production royalties, QNX could become a stronger growth engine for BlackBerry.
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