A former tech star is fading fast. Meanwhile, two smaller tech stocks are set to steal the show over the next five years.
BlackBerry Limited (BB 1.29%) used to be a big deal. The Canadian giant of the early smartphone market once had an $83 billion market cap, generating as much as $20.6 billion of annual sales.
Refocusing on cybersecurity services and connected-car software, BlackBerry enjoyed a brief recovery in 2019 and 2020. Unfortunately, BlackBerry’s trailing sales are now down by 40% in five years and its stock is worth just $1.4 billion today.
The stock has fallen 66% in the last five years, or an average annual loss of 19.4%. Let’s say BlackBerry can stabilize a bit and the stock only drops 15% per year over the next half a decade. In this scenario, it would be worth roughly $600 million in the late summer of 2029.
You could bet on another turnaround in BlackBerry’s long and volatile history, but I’m not sure the company has staying power in the ultra-competitive data security industry.
Instead, I would suggest looking into a couple of smaller and hungrier tech stocks on the upswing. Advertising technologist Outbrain (OB 0.20%) and business intelligence expert BigBear.ai (BBAI 3.19%) look ready to beat the market in the next five years. They may be small today, but I expect them to outgrow BlackBerry’s market value by 2029.
BigBear.ai: $413 million market cap
Artificial intelligence (AI) has been around for decades, but AI technology is driving all sorts of business growth right now. Companies collect lots of data about customers, devices, and other endpoints in order to gain an advantage from analyzing it with AI tools. Then, they let AI tools analyze that data heap in order to unlock a competitive advantage.
BigBear.ai can play a helpful part in that AI-based analysis process. Specializing in supply chain management and digital identity tracking, the company helps shipping companies, manufacturers, and defense contractors optimize their operating decisions.
The company was founded way back in 1988 but entered the public stock market as recently as December, 2021. Yep, just a couple of weeks after the onset of Wall Street’s inflation-based panic. On top of that unfortunate timing, BigBear.ai chose to enter the market via a special purpose acquisition company (SPAC), a method that was popular the year before but fell out of favor quickly. SPAC companies are now often seen as extra-risky investments.
But investors may soon forget about BigBear.ai’s SPAC-based history. The company is landing plenty of big-ticket contracts right now, including a traveler safety deal with Heathrow Airport. In another recent win, BigBear.ai won a data management subcontractor role for the Federal Aviation Administration (FAA). The ability to land these large contracts is a big upside, and I can’t wait to see who signs up for BigBear.ai’s help next.
Revenues are lumpy at the moment but BigBear.ai is approaching the breakeven line after a couple of years with negative earnings and cash flows. This company joined the market under difficult circumstances but I expect it to do well in the near future.
Outbrain: $252 million market cap
Here’s another market launch into the heavy inflation-crisis headwinds. Outbrain has been managing web-based advertising and content syndication flows since 2006, but saved its initial public offering (IPO) for the summer of 2021. An economic crisis was already brewing at the time, alongside the steep downside to the soaring online traffic of the coronavirus lockdown period.
So Outbrain picked a terrible time to raise capital from a stock sale in pursuit of a more ambitious growth push. Ad buyers locked down their marketing budgets in 2022, because nobody seemed ready to buy stuff. That sector downtrend is still in play today, and Outbrain’s financials are suffering.
However, the downturn can’t last forever and Outbrain is already showing bullish signs. Adjusted earnings have been positive in three of the last four quarterly reports and the company is generating modest cash profits. Meanwhile, other online advertising experts such as Alphabet and Snap have returned to healthy revenue growth after a dry spell.
Outbrain would need a generous annual gain of roughly 19% to pass the $600 million mark in five years. However, the company is also acquiring video-based advertising specialist Teads in a $1 billion buyout. The deal is expected to close in early 2025, creating a much larger and more profitable company than Outbrain alone. Something must go terribly wrong to stop the reformed Outbrain from having a $1.6 billion market cap in 2029.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends BlackBerry. The Motley Fool has a disclosure policy.
