I made a post early today in r/stocks discussing the potential revenue for Ivy. The mods there deleted it (I don't think it broke any rules). I'm re-posting it here as I would like to get feedback on the calculations from anyone who hasn't already replied.
Hello, I would like to post my thoughts on a company called Blackberry (BB), which I believe has strong potential. I’ll start with an introduction and move onto some revenue projection calculations, the latter forming the main focus for this write-up. If you agree or disagree, please let me know your thoughts. [Note: I did these calculations Aug 11 and this write-up a few days later, so valuations will have different numbers today due to the dip in the market. But, they would still be in the same range.]
Many may remember Blackberry: the one-time leader in smartphones, that was displaced by Apple and then completely pushed out of the industry by Android. The company has transitioned into software and its stock has largely traded sideways, apart from joining the meme craze. Really, it’s probably impressive they avoided bankruptcy. The company’s main focuses are cybersecurity (with acquisition of Cylance) and QNX, an operating system present in over 200M cars (24 out of the top 25 EV manufacturers use BB) and also found in medical devices and other industrial-type devices that require a safe and reliable operating system. However, the focus of this write-up is an upcoming product called Ivy. Because it has not been released or included in projected revenue numbers, this discussion is speculative. However, I believe enough information has been released to make some rough projections.
What is Blackberry Ivy?
Blackberry Ivy is essentially a platform that allows data to be collected from car sensors and then processed either in the car or in the cloud. Applications written on Ivy can take that data and use it to produce actions within the vehicle. An advantage of Ivy is it standardizes the application development process. So if 3 or 4 car manufacturers adopt Ivy, a programmer can create an application on Ivy that can then be used by any of those manufacturers, rather than having to write 3 or 4 versions of the app for each of the manufacturers’ software (Just like an Android app can work on different phones – Samsung, Huawei, etc.). Ivy is a 50-50 joint venture with Amazon, but BB is the main player driving it.
Why would manufacturers use Ivy?
Manufacturers are very motivated to monetize the software experience in cars. Manufacturers can make money two main ways: financial payments (i.e. taking a cut from all payments made from a car – fast food drive-thru, gas/electric station, tolls, etc.) and subscriptions (e.g. monthly payments for autonomous driving, heated seats, etc.).
There are three main ways for the manufacturers to achieve this:
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Build the applications themselves. This is the most desired option for the manufacturers, but it is also terribly expensive and most will likely produce mediocre applications. It also makes it difficult for third-party programmers to build apps if each manufacturer is using their own custom software.
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Partnership with big tech (Apple, Google). This is what manufacturers dread the most. While they’d be happy for big tech to provide infotainment options, they don’t want to give their lunch away to big tech. Manufacturers do not want to be reduced to hardware manufacturers and see the big money in software. Even a partnership would likely have manufacturers nervous of big tech eventually taking over. While this option may be chosen by manufacturers, I think they will do their best to avoid it.
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Outsource to a third party. Here is were BB comes in. BB has built a relationship with auto manufacturers over the last decade with the introduction of QNX. This has built trust between them. Unlike Google and Apple, who want to own the data, BB has promised to give the control and ownership to manufacturers. BB will also likely be first-to-market, giving it a jump over other competitors. Third-party programmers would also be able to build apps for any manufacturer using Ivy, creating a marketplace for applications. This is the most practical option for manufacturers, but the difficulty will be signing the first few manufacturers, then momentum will build.
BB views itself as the leader for the 3rd option, especially given their investments in cybersecurity. My calculations assume BB is successful in getting some manufacturers to adopt Ivy. BB says manufacturer interest in Ivy, at this point, is high. Decisions should be made in 2023, but I believe we could even hear something by late 2022.
I expect some manufacturers not to select Ivy, such as Tesla and 1 or 2 manufacturers who might go it alone (Ford?). However, once 2 or 3 manufacturers pick Ivy (VW? BMW?), the critical mass will cause others to join-up or fall behind. This is also how Android took over the last of the smartphone market from BB.
**********CALCULATIONS**********
What is Ivy worth to BB in revenue?
This is a big question as, while QNX is a one-time payment believed to be roughly $3-4/car (assuming no additional services), Ivy is expected to be re-occurring revenue for the lifetime of the vehicle.
Here I do some rough calculations (I show two different methods for determining revenue) and assume Ivy is adopted by at least some manufacturers. I don’t actually know what BB would charge, but since Ivy has similarities to Apple’s App Store and Google’s Play Store, I use those as benchmarks. Apple/Google charge 30% of revenue from apps, but also have a lot more leverage against app developers than BB has against manufacturers. On the other hand, BB will have to invest significantly in maintaining security and functionality. I am estimating BB would want at least a roughly 20% cut of revenue generated by manufacturers through apps. [Note: This isn’t saying BB would sign a percentage deal instead of a flat rate deal with manufacturers, I’m just spit-balling what they would like the value to be near in order to create a baseline for revenue estimates].
The next question is how much manufacturers could make from these apps, which would then allow us to determine what BB’s cut would be. Here I try to take into account the manufacturers getting a cut from all in-car purchases and potential subscription revenue. This is difficult to do. BMW was in the news for wanting to charge $12/month for heated seats. If fully automated driving happens, they could perhaps charge $300+/month. EV owners tend to be wealthier and spend more than the average person, but some people would avoid subscriptions altogether.
I decided to use a starting point for average manufacturer revenue of $10/month/car ($120/year/car) as an estimate. This may be a conservative number, but allows me to do some rough calculations and provide a baseline. Again, this is just a baseline. I would expect the actual number, whatever it is, to grow over time as the software develops.
Ivy’s roughly 20% cut of $120/year/car would be $24/year/car. Since Ivy is a 50-50 partnership with Amazon, I am estimating then that BB would aim to receive $12/year/car.
The next question is how many cars would have Ivy? Currently, BB’s QNX is installed in approximately 20M new cars each year. I play-out two scenarios. First, where half of this QNX production adopts Ivy (“Half QNX” = 10M cars/year) and, second, where all of QNX production adopts Ivy (“Full QNX” = 20M/year). [Note: 20M QNX cars per year is just a rough estimate.]
Here would be the estimated revenue (again, assuming a $12/year/car for BB):
Year 1 of Ivy – 2024:
Half QNX adoption = $120M
Full QNX adoption = $240M
That is my estimated range of revenue from Ivy for BB, just in 2024.
How accurate is this estimated revenue?
BB recently mentioned that they believe the SAM for Ivy-related products in 2024 will be ~$800M. My $120M-$240M estimate falls within this. The excess would include Tesla and any manufacturers who do not adopt Ivy. Even then, since BB believes there is no similar competitor to Ivy on the market, my numbers look to be conservative and may underestimate the revenue potential.
{Alternative method: If you do calculations working backwards from the SAM estimate, Half QNX adoption could be valued at $182M and Full QNX adoption could be $364M just for 2024 (Based on ~20M QNX cars and ~2M Tesla cars. These revenue numbers are just BB’s revenue from the 50-50 Ivy partnership.). This is likely the better method as it avoids my arbitrary $10/month/car in manufacturer revenue and instead focuses on BB’s projection. I will continue to use both the more conservative numbers of the first method as a baseline and this alternative method as a comparison. Interestingly, this alternative method also suggests the cost BB is expecting to charge manufacturers for using Ivy will be approximately $36.36/year/car ($18.18/year/car of which will be BB’s share of the 50-50 venture) Note: These calculations assume that the entire estimated 2024 SAM is in the automobile industry and not other potential industries like aerospace and medical and that Ivy-like products cannot be retroactively applied to cars already on the road.}
I have yet to see anyone on-line discuss BB’s SAM disclosure for Ivy-related products. I consider this a huge piece of information as it gives insight into what BB may look to charge for Ivy. This takes the discussion away from complete speculation to more reasonable estimates. Of course, BB is not guaranteed to get the price that it hopes for, but BB’s SAM estimates provide better foresight than random guesses on the internet. BB bears will rightly point out that these numbers mean nothing if BB fails to sign any manufacturer, but I am trying to determine what the future value of BB could be, not determining what its current value is.
The SAM disclosure can be found here u/24:17 (Note: FY 2025 for BB is essentially calendar year 2024): https://wsw.com/webcast/oppenheimer23/bb/2273700
Post-2024 Revenue Estimates.
Assuming production of QNX cars continues at a rate of 20M per year and maintaining the same $12/year/car for BB from the first, conservative method, I did a further estimate of revenue for 2026. Keep in mind, this is reoccurring revenue, so 2024 and 2025 Ivy-installed cars would also be included.
Year 3 of Ivy – 2026:
Half QNX adoption = $360M
Full QNX adoption = $720M
Keep in mind BB’s total revenue for FY 2022 (essentially calendar year 2021) was $718M. So, Ivy revenue could double BB’s total company revenue by 2026.
{Alternative Method: The alternative method would predict $545M for Half QNX adoption and $1.091B for Full QNX adoption for 2026. This is calculated by multiplying the estimated $18.18/car BB will receive for Ivy by the estimated number of cars (30M for Half QNX adoption and 60M for Full QNX adoption)}
What does this do for share price?
This kind of revenue would turn BB into a high-growth stock. For valuation of BB’s potential share price, I look to the Price/Sales ratios of different companies. P/S ratios are not the only way to value a company, but, since these are rough calculations, they will give us a guide. A mature software company like Microsoft has a P/S ratio of 11. However, higher growth software companies tend to have higher P/S ratios like Crowdstike (26), Cloudflare (31), and ZScaler (24). Blackberry currently has a P/S ratio of 6 and is not priced anywhere near a growth stock. [Note: These values were from Aug 11. These growth companies are now in the 20-25 range, which, while lower, is still close to my estimate].
If we now consider BB to be a growth stock and estimate its potential stock price based on a P/S range of 10 to 30, my revenue estimates, just for 2024, would put the value of the company at between 2.5 to 8.3 times its current value [Note: I did these calculations Aug 11 when the stock price was about $7/share and about $4B in market cap – I used these rounded numbers in calculations]. The corresponding projected share price would be between $17.30/share (Half QNX adoption, P/S of 10) and $58.10/share (Full QNX adoption, P/S of 30). This is only for 2024.
The share price in 2026 would be valued at between $27.53/share (Half QNX adoption, P/S of 10) and $101.48/share (Full QNX adoption, P/S of 30).
This provides a wide range. To determine a specific price target, I considered a P/S ratio of 25 and Half QNX adoption as being the reasonable benchmarks, which would give a price target of approximately $43/share (2024) and $69/share (2026). The Half QNX adoption takes into account there may be unknown competition in the Ivy space or that some manufacturers may be slower to adopt Ivy. Remember, this is based on my more conservative, first method, not the alternative method using the SAM estimates.
*{*Alternative Method: Using the alternative method based on BB’s SAM estimate, reasonable price targets would be $46/share (2024) and $77/share (2026)}
Based on these calculations, BB could be a ten-bagger by 2026. Of course, it’s difficult to be a ten-bagger in such a short period of time and even more difficult to predict it, so I welcome your thoughts. Of course, these are just rough calculations and make a number of assumptions. But, as the alternative method is based on Ivy’s SAM as provided by BB, these numbers are insightful.
Bear argument: BB stalled Cylance growth after acquiring it and probably botched the recent patent sale, how can we trust management to pull this off?
Bull counter-argument: BB was so focused on this high-growth Ivy project, that the patent sale looks like pocket change in comparison and even the specific focus on cybersecurity products has taken a back-seat.
Final Thoughts:
BB has stated we should hear more about Ivy revenue projections by the end of this fiscal year. That means I expect to know if Ivy will be a success by the March 2023 earnings call. There are two other earnings calls in the meantime (September 2022 and December 2022), where we may also hear news. That is a relatively short period of time to wait for news on something with so much potential as Ivy. Maybe it will be a flop, or maybe it will revolutionize the auto industry.
This is not financial advice. I am long Blackberry. I am not a professional trader or investor. I do not have experience or connections in these industries. I am not a financial advisor. I am not a cat. I am just a guy who spent a few minutes doing some calculations.