I am a BlackBerry Fan. Or I was. Big one too! It is one of the best innovations for the working professional. I missed the old flywheel BlackBerry that I can throw it across the room and it survives. I was really hoping they could turn the company around and have a real strategy. The problem remains that the management is so disconnected with the real world and the engineering focus overshadowed the needs to create something beyond just a good user experience. The BlackBerry Z10 is a beauty. But that's not enough.
I don’t think the Fairfax deal is a good one. Fairfax, which already owns 10% of BlackBerry, plans to pay $9 per share for the company, about 3% more than its closing price which I think is way undervalue. So what does the company worth? There is no right answer.
Blackberry assets include 1/cash 2/patent portfolio 3/real estate and jet 4/software all add together and then minus any long-term debt and liability. Their hardware business pretty much worths nothing. The math is not hard. 1,2 and 3 are easy to value. Software is not so simple. WhatsApp claims to have 250 million active users, and they are now a paid application. BBM, on the other hand, is free and have more compelling features. BBM can make money from this if they know how to play the game. It is not the BBM customers that they used to know. I think they have good chance to play in the OTT communication game on cross-platform devices.
The radical rethink of BBM can create a survival plan and could easily bring in $350-400mm a year and would contribute about $0.50 in earnings per share (EPS) and be worth roughly $6 per share (using 12x earnings).
Patent is a secret treasure chest. In addition to patenting their won technologies, BlackBerry has also bought tons of patents from the bankrupt Nortel and other stast-ups and spend time developing a whole new operating system. Typically patents last 20 years from the date of their application, making BlackBerry’s 3.6 year average very attractive. BlackBerry’s 9,268 granted patents could worth between $3 to $4 per share depending how intense the bidding and that makes already $10. Now add roughly $1.5 billion plus in cash (after write-down) and the sale of building and the jet. The very minimum the company is worth $13 a share. Lenovo is happy to pay that but Canadian goverment might not like the idea.
China cellphone maker/start-up Xiaomi latest funding round values it at $10 billion. That’s nearly two times BlackBerry’s current value. It is currently the sixth-biggest smartphone producer in China. Clearly, its strategy of selling high-spec smartphones at low-spec smartphone prices is paying off quite well. Blackberry has a lot to learn from other companies. Blackberry were distracted by Apple and being dragged into a no-win game. The company was operating with yesterday’s operating system in terms of strategy and don't understand how fast the world is moving. It was destined to fail. There is still a slim hope. You need to think radical.
For Disclosure. I personally hold BlackBerry shares and Blackberry bought research services from Idea Couture at one time.