BlackBerry's Q1 2025 Earnings Signal Undervaluation and Growth in Cybersecurity and IoT

BlackBerry's Q1 2025 earnings report offers a compelling case for why the company could be undervalued despite persistent macroeconomic headwinds. While its stock price has hovered around $4.30 in recent weeks, the results highlight accelerating momentum in its cybersecurity and IoT divisions—two high-margin segments with clear growth catalysts. Let's unpack why investors should take notice.

Undervalued on the Back of Strong Divisional Performance

BlackBerry's stock currently trades at roughly $4.33, with a market cap of $2.57 billion as of June 24, 2025. This valuation seems out of sync with its financial trajectory. In Q1, the company reported total revenue of $144 million, with its cybersecurity and IoT divisions collectively contributing 96% of total revenue. Notably:
- Cybersecurity revenue hit $85 million, up 10% year-over-year, driven by its AI-powered solutions like CylanceMDR and Cylance Assistant.
- IoT revenue rose 18% to $53 million, fueled by its QNX software platform, which powers automotive systems and robotics.

The stock's muted reaction to these results—despite beating adjusted EBITDA guidance and maintaining a strong $283 million cash position—hints at undervaluation. Analysts' neutral consensus ($4.50 price target) and narrow trading range suggest the market has yet to fully appreciate the company's shift toward recurring revenue models and strategic cost cuts.

Growth Catalyst #1: Cybersecurity's Recurring Revenue Engine

BlackBerry's cybersecurity division is transitioning from a product-centric model to a subscription-based one, with annual recurring revenue (ARR) now at $285 million. The Dollar-Based Net Retention Rate (DBNRR) improved to 87%, a key indicator of customer loyalty. This division's AI-driven solutions, such as CylanceMDR—a managed threat detection service—are particularly promising.

The sector's 2% sequential ARR growth and 59% contribution to total revenue underscore its importance. With enterprises increasingly reliant on AI for threat detection, BlackBerry's investments in generative AI tools like Cylance Assistant could drive further growth.

Growth Catalyst #2: IoT's Long-Term Licensing Pipeline

The IoT division's $865 million royalty backlog (up 6% YoY) represents future revenue from embedded software licenses in automotive and industrial robotics. QNX, BlackBerry's real-time operating system, is critical to software-defined vehicles (SDVs), a market expected to grow at 18% CAGR through 2030.

Partnerships like its collaboration with Microsoft Azure to develop cloud-based automotive software and with AMD for low-latency robotics further solidify its position. The IoT division's 81% gross margin—among the highest in the industry—ensures profitability even as it scales.

Risks and Mitigations

• Profitability hurdles: While adjusted EBITDA improved to -$7 million in Q1, the company aims for breakeven by Q4. A $13 million operating cash outflow in Q2 remains a concern.
• Execution risks: Separating the cybersecurity and IoT divisions into independent entities could strain resources.

However, these risks are offset by BlackBerry's $150 million cost-cutting achievement and its focus on high-margin segments. The planned $75 million in additional cash generation in fiscal 2026—including a $40 million payment from the Cylance sale—should ease liquidity pressures.

Investment Thesis: Buy the Dip

BlackBerry's stock trades at a price-to-sales ratio of just 0.17x, far below peers like Tenable (0.82x) or CrowdStrike (5.3x). Its undervaluation is even starker when considering its $265 million in cash reserves and the strategic clarity of its divisions.

Analysts' $4.50 price target implies ~4% upside, but this could rise if the company hits its $616 million full-year revenue target or achieves its Q3 breakeven EBITDA goal. Investors should consider buying shares near $4.20–$4.30, with a 12–18 month horizon, as the stock has historically rewarded patience during its transition to software-centric growth.

Historical backtests reveal that shorter-term strategies—such as buying on earnings and holding for 60 days—have been volatile, with a maximum drawdown of -80% and negative excess returns. This underscores the importance of a disciplined long-term approach to capture the company's growth trajectory.

Final Take

BlackBerry's Q1 results confirm that its pivot to cybersecurity and IoT is working. While profitability remains a near-term hurdle, the company's recurring revenue streams, strong cash position, and strategic partnerships position it to thrive in two of tech's fastest-growing sectors. For investors willing to look past short-term volatility—and mindful of the risks highlighted in historical backtests—BlackBerry offers a rare blend of undervaluation and long-term growth potential.