BlackBerry Limited (NYSE:BB; TSE:BB) experienced a sharp pullback on Thursday, with U.S. shares declining approximately 8.8% to $11.68 during midday trading. The stock had earlier touched a session high of $13.00 before reversing course, as the company's recent rally brought its convertible debt structure into sharp focus.
The decline comes as a note conversion window opened from July 1 through September 30, triggered by the stock's sustained advance above 130% of the notes' conversion price. Full conversion of the 3.00% notes could result in the issuance of up to 51.5 million new shares, representing an 8.8% dilution from the current base of 586.0 million shares outstanding as of June 22.
BlackBerry's QNX embedded systems business continued to show strong momentum, with revenue jumping 26% to $72.3 million in the May quarter, up from $57.5 million a year earlier. CEO John Giamatteo highlighted growing customer adoption of next-generation software-defined vehicles, noting that QNX's future royalty backlog has reached nearly $1 billion.
The company's Secure Communications segment also delivered solid results, with revenue rising to $73.6 million from $59.5 million. Annual recurring revenue (ARR) climbed to $220 million, though dollar-based net retention remained at 92%. Adjusted EBITDA improved to $36.3 million from $14.9 million, while free cash flow turned positive at $1.7 million, compared to a use of $18.9 million in the prior year period.
However, the potential dilution from the note conversion remains a key concern for investors. BlackBerry's market capitalization surged to nearly $6.8 billion during the recent rally, making the notes particularly attractive to convert. At May 31, the notes were carried at $196.8 million on the balance sheet, but the company estimated their fair value at $441.1 million, up sharply from $241.7 million at February 28.
Analysts remain divided on the stock's valuation. Stifel Canada's Suthan Sukumar initiated coverage with a Buy rating and $12 price target, arguing that the market misdefines BlackBerry and that it represents a software layer in the AI stack. In contrast, Morningstar's William Kerwin set a fair value estimate of C$7.30, suggesting the stock remains overvalued after rallying more than 150% year-to-date.
BlackBerry raised its full-year fiscal 2027 revenue guidance to $594 million to $621 million, up from the prior range of $584 million to $611 million. For the current quarter, the company forecasts revenue of $137 million to $148 million and adjusted EBITDA of $20 million to $30 million, with operating cash flow expected to range from breakeven to $10 million.
Trading volume reached 28.4 million shares on Thursday, below the 43.7 million average, as markets prepared for the U.S. Independence Day holiday. The NYSE will trade on Thursday but close Friday, while Toronto resumed trading after the Canada Day holiday.
