Blackberry (BED AND BREAKFAST -5.24%) Y crowdstrike (CRWD -5.37%) they represent two very different ways of investing in the cybersecurity market. BlackBerry reinvented itself as an enterprise-oriented cybersecurity company after pulling out of the smartphone market. That transformation was significantly accelerated with the acquisition of Cylance in 2019.
CrowdStrike has been shaking up traditional cybersecurity companies with its cloud-native Falcon platform. Instead of installing on-site devices, which can be expensive and difficult to scale as an organization expands, CrowdStrike only provides cloud-based services. BlackBerry’s Cylance runs on a hybrid mix of on-premises devices and cloud-based services, so it’s not considered a direct competitor to CrowdStrike.
Both stocks clearly attract different types of investors. BlackBerry’s recent growth rates have been tepid, but value-seeking investors believe it could represent a long-term comeback. CrowdStrike’s growth rates are impressive, but only aggressive growth-oriented investors are likely to accept their high valuations as interest rates continue to rise. So which cybersecurity company will fare best in this challenging tech stock market?
Why did BlackBerry’s growth stall?
BlackBerry revenue increased 15% in fiscal 2020, which ended in February of the calendar year, after the Cylance acquisition closed. But in fiscal 2021, its revenue fell 14% after outgrowing that purchase and struggling with the impact of the pandemic on the auto industry. QNX, its embedded operating system for connected vehicles, had previously been a major growth driver for its Internet of Things (IoT) business.
In fiscal 2022, BlackBerry’s revenue fell 20% to $718 million. Its cybersecurity revenue, which comes primarily from its Spark platform (and includes Cylance), fell 3% to $477 million.
Its “licensing and other” revenue plummeted 77% to $63 million as third-party OEMs stopped licensing their brand for new Android devices. It also agreed to sell most of its legacy patents to raise more cash near the end of the fiscal year. Those declines fully offset a recovery in its IoT business, which grew revenue 37% to $178 million as the auto sector staged a partial post-pandemic recovery.
However, BlackBerry is likely to continue to struggle. For fiscal 2023, analysts expect its revenue to decline 4% to $690 million as inflation, supply chain and other macro headwinds continue to affect the auto sector. It also faces stiff competition in the crowded cybersecurity market.
BlackBerry’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) turned negative in fiscal 2022, and analysts expect it to remain in the red through fiscal 2024. Sales.
Why is CrowdStrike continuing to grow?
CrowdStrike’s revenue was up 93% in fiscal year 2020, which ended in January of the calendar year, and grew another 82% in fiscal year 2021. CrowdStrike didn’t face as many hurdles during the pandemic because it wasn’t tied to large, macro-sensitive markets like BlackBerry. Businesses could also easily remotely subscribe to its cloud-based services without scheduling risky on-site visits and device installations.
In fiscal 2022, CrowdStrike’s revenue increased 66% to $1.45 billion, while its adjusted net income soared 157% to $161 million. By fiscal 2023, it expects revenue to grow 53% to 54% and adjusted earnings per share (EPS) to nearly double. Analysts expect its Adjusted EBITDA to more than double this year and remain positive for the foreseeable future.
CrowdStrike is growing like a weed for three simple reasons. First, it has established a pioneering advantage in cloud-native cybersecurity services. That is why its number of subscribed customers increased from 2,516 at the end of fiscal year 2019 to 19,686 in the second quarter of fiscal year 2023. Its gross margins have also remained consistently in the high 70s, which suggests that it has a lot of power. pricing in that growing market. . By comparison, gross margins for BlackBerry’s sluggish cybersecurity segment are still hovering around 50.
Second, CrowdStrike customers are locking themselves in by using more of their cloud-based modules. In its most recent quarter, 36% of its customers were using at least six of its modules, compared to just 29% a year ago. Lastly, its dollar-based net retention rate has remained comfortably above its “benchmark” level of 120% since its 2019 IPO.
CrowdStrike is growing much faster than BlackBerry, but it’s also priced at 20 times this year’s sales. That high price-to-sales ratio could limit their short-term gains, as higher interest rates drive investors toward more conservative investments.
The obvious winner: CrowdStrike
BlackBerry briefly became a meme stock after it experienced a bit of a squeeze last year, but its underlying business is still unraveling. Its transformation from a hardware manufacturer to a software manufacturer might have bought it more time, but it doesn’t stand out in that market. CrowdStrike is clearly the best long-term option for investors willing to ride out short-term volatility. Even if its growth cools in the next few years, this high-growth cybersecurity stock could still deliver some impressive gains.
leo sun holds positions in CrowdStrike Holdings, Inc. The Motley Fool holds positions in and recommends CrowdStrike Holdings, Inc. The Motley Fool recommends BlackBerry. The Motley Fool has a disclosure policy.