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BlackBerry CEO on Cylance vs CrowdStrike; Channel Partner Strategy

BlackBerry’s integration of Cylance is ahead of schedule, and key cybersecurity software launches are in the pipeline, according to CEO John Chen. During an earnings call, Chen also touched on BlackBerry’s buyout of Cylance vs. the CrowdStrike IPO; along with an SMB channel product strategy.

BlackBerry acquired Cylance, an artificial intelligence-focused endpoint protection company, in November 2018.

BlackBerry’s first quarter of fiscal 2020 financial results, disclosed yesterday, revealed:

  • BlackBerry Cylance software and services revenue was $51 million, up 31 percent year-over-year. Note: That’s a non-GAAP figure. When U.S. GAAP is applied, BlackBerry Cylance revenues were $32 million.
  • The acquired cybersecurity business had a 30 percent year-over-year increase in the number of new active subscription customers, Chen said.

BlackBerry’s stock fell about 8.8 percent amid the financial disclosure; some Wall Street analysts expressed concerns about potentially slowing Cylance growth.

BlackBerry Cylance: Integration Milestones

Still, Chen downplayed such concerns during the earnings call, and emphasized a long-term business plan that’s ahead of schedule. Chen noted:

  • BlackBerry has completed the integration of Cylance’s back office functions and personnel worldwide.

  • The company has nearly completed the integration of various systems and tools. That work will be completed in the next couple of months.

  • The R&D team is on track to integrate Cylance technology into BlackBerry’s UEM (Unified Endpoint Management) technology. “This integrated product will be available by next spring with a combination of the QNX and Cylance technologies that all came out thereafter. Also the new products that BlackBerry Cylance announced earlier this year namely Cocoon, Gauard and Persona are on track to be released throughout our fiscal year,” Chen said.

  • BlackBerry Cylance year-over-year growth is expected to be in the range of 25 percent to 30 percent range.

BlackBerry Cylance vs. CrowdStrike IPO

During the earnings call, Chen offered this assertion: Rival CrowdStrike’s recent IPO further strengthened BlackBerry’s financial model for the Cylance acquisition.

“I think this [Cylance] is a completely undervalued asset,” Chen asserted. “If you look at what we paid for Cylance, you will see that it will probably coming in 6.6 times or 6.7 times revenue.” In stark contrast, he pegs CrowdStrike trading — at some point — at a more lofty 40 times revenues. “So I think this is great news for BlackBerry” in terms of making a strategic acquisition at a more reasonable valuation.

Still, some Wall Street analysts noted that CrowdStrike is growing faster than Cylance. But Chen told analysts to keep two variables in mind.

  • First, CrowdStrike spent heavily to promote the business as it ramped toward a recent IPO.
  • Second, Cylance has a 100-percent plus retention rate because existing customers stick with the platform and actually expand their spending on the platform.

MSSP Alert reached out to CrowdStrike for perspective, and the company says its retention rate is over 100 percent, and documented in S1 filings.

BlackBerry Cylance Channel Partner Strategy

Chen also touched on the company’s channel partner strategy — emphasizing an effort to work closely with partners in the SMB market.

“I want Cylance to continue their expansion in the channel business,” he said. “They have — there are literally over 1,000 channel partners and they are mostly focused on SME [small and midsize enterprise] and so I wanted that business. And they started to make some inroads on the consumer side of the equation by working with OEMs like laptop’s OEMs and desktop OEMs, and I wanted to continue that too.”

Moreover, BlackBerry plans to increasingly offer its products through the Cylance SMB channel, he added.

Chen and the BlackBerry team failed to specifically mention MSPs and MSSPs during the earnings call. But the company has a dedicated effort to work closely with such partners.

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