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Blackberry (BB +13%), a software-focused firm operating an IoT and Cybersecurity division, is enjoying plenty of green today after delivering decent-sized earnings and sales beats in Q1 (May) while keeping its FY25 (Feb) outlook unchanged despite some near-term turbulence. No longer dealing in mobile hardware, BB has embarked on several business overhauls throughout its time as a publicly traded firm. Most recently, BB announced it would separate its IoT and Cybersecurity units into two independently operated entities, pursuing a subsidiary IPO for IoT (launching in 1HFY25). While this plan continues progressing nicely, it has not triggered much investor enthusiasm.

Shares of BB have been on a steady course lower throughout the past several months, tumbling by as much as 60% since September 2023 highs heading into its Q1 report yesterday after the close. The correction has not been entirely the result of internal missteps, as the stock pulled back sharply late last year due to auto union strikes. Still, investors have grown impatient because of BB's inability to translate its formidable presence within the automotive software industry (its software is embedded into hundreds of millions of vehicles globally) into meaningful top or bottom-line growth. The same applies to BB's cybersecurity software, which is used across large governments and prominent financial institutions.

However, BB's Q1 report could mark a turning point.

• Headline results were not overly stunning, as EPS remained red at $(0.03) while revs nosedived by 61.4% yr/yr to $144 mln. However, the sales drop was entirely due to BB's licensing segment, where it sold a substantial chunk of its patents last year. When looking at just BB's IoT and Cybersecurity segments, revenue was flat yr/yr at $138 mln.
• Cybersecurity remains the drag on BB's overall performance, which was no surprise given the current demand environment, which has elongated sales cycles across the industry. Cybersecurity revs slipped by 9% yr/yr to $85 mln, which was still above BB's previous guidance. The company also maintained its FY25 Cybersecurity revenue outlook.
  • While the cybersecurity market remains unfavorable, BB did observe encouraging improvements across its ARR and dollar-based net retention rate, which increased for the second and third straight quarters, respectively.
• Conversely, IoT, which houses BB's QNX software used in automobiles, including EVs and internal combustion engines, enjoyed an 18% bump in revs yr/yr to $53 mln, also surpassing the company's prior forecast. Automotive market conditions remain fragile as interest rates suppress consumer demand. Still, BB reiterated its FY25 IoT revenue projection. Management also remained optimistic about longer-term demand, citing mounting interest in QNX and a vehicle landscape becoming progressively more software-defined.

The year ahead for BB may contain plenty of obstacles as the company deals with little appetite for cybersecurity software and an end-consumer not bursting at the seams to buy the latest automobile. However, BB's headwinds may be topping, potentially setting the stage for reaccelerating growth come FY26.