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The Faceoff: BlackBerry’s revenues dip during its most recent quarter as Palo Alto reports double-digit revenue growth

The Faceoff: BlackBerry’s revenues dip during its most recent quarter as Palo Alto reports double-digit revenue growth
Business
It’s hard to imagine that there was once a point in time when BlackBerry dominated the smartphone market. In an industry that is ever-evolving, it seems like eons ago that BlackBerry’s hand-held devices, equipped with a screen on the top half and a full keyboard on the bottom half, were as ubiquitous for executives as they were for teens.

When John Chen took the helm of BlackBerry in 2013, there was a lot of uncertainty surrounding the direction of the company. In a bold (no pun intended) move, Chen diverted attention and resources away from BlackBerry’s hand-held division to its cybersecurity division.

Chen’s efforts to change BlackBerry’s focus were successful and according to its first-quarter 2022 results, $107 million (U.S.) of $174 million in revenues came from its cybersecurity division. Overall revenues are down from $206 million in 2020 but the net loss improved substantially to $62 million this quarter compared with $636 million the prior year.

“Before the pandemic we would have seen people bringing their own mobile phone devices and connecting that to corporate email and networks, but now with work-from-home we have corporate devices on home networks. The number of end points that need to be secured have grown and it is a challenge for (IT administrators) to defend that large attack surface,” said Douglas Stebila, an associate professor in the Faculty of Mathematics at the University of Waterloo. Stebila’s research focuses on cryptography — the mathematics of encoding secret messages for secure communication.

In terms of cybersecurity trends, Stebila notes that “over the past decade, we are seeing a move from the paradigm of perimeter security to zero trust. In the past you would try to build a thick wall around your systems and hope that no one got through the wall. What we are seeing now is that you (design your systems assuming) that attackers are likely to be inside your network (already).”

As for the competitiveness of Canadian cybersecurity companies, Stebila acknowledges that “we certainly have some good Canadian firms competing on the international stage” but we are not “as competitive as we would like to be.”

Palo Alto’s revenues surge

Sharing a name with the city in Silicon Valley, Palo Alto Networks provides cybersecurity platform solutions with a focus on firewall appliances and software. According to its website, the company has over 82,000 clients in more than 150 countries.

In its third-quarter 2021 results ending April 30, the company reported $1.074 billion in total revenue, up from $869 million in 2020 with $4.4 billion in deferred revenue. Chairman and CEO Nikesh Arora attributes some of the revenue growth to a greater focus on security due to the work-from-home shift in 2020 and recent cybersecurity issues.

Despite the company’s growth in revenues, it reported a net loss of $145 million in 2021, compared with $75 million in 2020.

Jonathan Ho, an Equity Research Analyst at William Blair & Company, notes that Palo Alto’s strong first-quarter results are driven by its cloud business and the selling of products in other categories, such as artificial intelligence.

“What’s happening in the network security space is that we are seeing this transition to the cloud where two things are happening. One is that many of the traditional on-premises servers are moving to cloud environments like Amazon Web Services and Microsoft Azure. What Palo Alto is seeing is a shift from traditional hardware firewalls to virtual firewalls,” Ho said.

“The second area of cloud growth that we are seeing with work from home and remote branch offices is that there is a much larger opportunity for the company to sell firewalls that are hosted as a service. In the past you used to buy firewalls and network security in the physical format, but it doesn’t really protect you on the network security side when you are travelling or working remotely from home,” he said.

As for Palo Alto’s competitive advantage, Ho acknowledges that the company “is known for having strong technical solutions.”

The bottom line

BlackBerry’s glory days may be behind it, but its first-quarter 2022 results prove that its bet on cybersecurity has paid off. With just $174 million in revenues for the first quarter, BlackBerry’s top line is noticeably less than last year’s, however, it appears the company has stopped the bleeding with a net loss roughly 10 times less than the same period last year. Palo Alto on the other hand has seen a 24-per-cent growth in its top line, but its net loss roughly doubled compared with the same period last year. Despite this, Palo Alto gets the thumbs up for its innovation.
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