Flickr

BlackBerry (NSDQ:BBRY) stock is a very volatile stock. When the company announced its latest set of earnings on the 20th of December, the share price rose to around $8 a share, but since then has plummeted back down to the $7 level. Blackberry is unique in that it is a low priced stock but is just as liquid as many of its peers. This combined with the volatility of the tech sector attracts all types of investors and traders as volatility is a guarantee (which we have obviously seen over the past week or so).

BlackBerry's latest fiscal third quarter was definitely a mixed bag. On one hand, you had aggressive margin expansion and a surprising profitable quarter on a non-GAAP basis, but on the other hand, top line came in $20 million short of what was expected. A return to revenue growth is expected next year with enterprise software & QNX probably leading the way. Blackberry and its investors know that if this company can comprehensively combine these areas as well as its security wing to work cohesively in the emerging Internet Of Things market (IoT), then this company will have a strategic competitive advantage. Blackberry's pivot from hardware to software may have been well timed but I would still recommend caution. Here are three reasons to back up my case.

Blackberry Will Want Quick Adoption Of Self-Driving Cars. Will It Happen?

Billions of dollars are presently being pumped into the self-driving car industry and Blackberry definitely wants a large piece of that pie. The race is definitely on and Blackberry has stated its intentions to lead by announcing a $75 million testing hub (which will mainly employ engineers) in Ottawa. Blackberry has already hooked up with Ford to develop car software but investors should be aware of some possible headwinds here. In my opinion, the speed of adoption will be crucial. Basically, Blackberry and the likes of Ford on the automobile side are hoping that this technology will become mainstream quickly, but I have major doubts. Quick adoption means Blackberry can leverage its efforts and tie up with many auto manufacturers (as it will have a first mover advantage) to see a strong return on its investment.

QNX Will Need Major Upgrades

Firstly, you can expect that Blackberry's tech competitors (such as Google & Apple) would close the gap if this technology doesn't get approved in the near term. The likes of Apple could continually invest in this area for decades without overly impairing its balance sheet. Blackberry can't. Blackberry's bet is that its QNX will go mainstream in the near term and due to the volumes involved, it would really drop the cost of the technology over time. The company is already working with 40 automobile manufacturers. The natural transition is for its present infotainment system software to include robust autonomous driving technology. That all looks good on the surface but the speed at which the company can get its product in cars on mass will dictate whether QNX will take off or not.

EMM Is Only Growing Because Of Acquisitions & Strong Sector Fundamentals

Blackberry is also hoping to see big gains in its enterprise mobility management (EMM) division due to bullish fundamentals across this space in general. In fact, this $2 billion market should continue to grow at a healthy clip going forward, mainly due to companies needing to integrate mobile devices into a central structure. Many believe that EMM will drive future growth for the company, now that Blackberry's market share has increased meaningfully to 15% as a result of recent acquisitions.

However, investors should remember that the likes of IBM & Microsoft have basically ignored EMM up to now but could easily enter if they wanted to. This is why margins can be so volatile in the tech industry. Very few companies have huge market shares in their sectors, which is why downside risk is always a distinct possibility. Blackberry simply does not have enough market share nor is a cheap enough producer to deserve a competitive advantage in EMM in my opinion.

Summary

To sum up, Blackberry has been in the news a lot lately due to the setting up of its new self-driving hub in Canada along with licensing of its mobile phones to China's TCL. EMM & QNX will be the drivers going forward. But the risks in BBRY stock continue to remain elevated, in my opinion. There is limited downside protection, so investors should remain very cautious about investing in BlackBerry stock.