Notes to Myself…Blackberry Ltd…A Possible Takeover Target

Notes to Myself…Blackberry Ltd…A Possible Takeover Target

Blackberry Ltd…9.67 on the TSX...7.41 on the NYSE

Instead of picking stocks outright…a strategy I’ve employed with success over the years is gathering resources that focus on information that is off-the beaten track and somewhat contrarian by nature. Stephen Takacsy of Lester Asset Management (a small investment fund) has been a frequent source of a lot of my investing ideas. Another good source of information is the website, Seeking Alpha…now because it is a website; there can be a lot of nonsense there as well. An investor has to be discerning in his hunt for valuable (hidden and underused) information. That being the case, rather then focus on the articles that are published on the site which gets all the attention, I instead focus on the comments of other investors making observations about the article…Now as you could well imagine most of the comments are a waste of time, but the odd time I will find a well-thought out piece of analysis that is thought provoking and informative. The people making these comments usually only do it once and move on (a good sign, where as a lot of the others post comments again and again (a sign of a big ego) without saying anything worthwhile…Below are a couple of observations about the Canadain Tech company, Blackberry Ltd…

Many investors don’t realize that BlackBerry is now a pure software company with a growing double-digit recurring revenue base from three streams:

Enterprise security software for mobile communication, which the company is traditionally known for and it's transitioning into a software-as-a-service model;

The QNX operating system, the gold standard for the automobile industry for infotaiment and advanced driver assistance systems and for which BlackBerry gets a royalty per car (120 million cars so far); and a large patent licensing business.

BlackBerry also just acquired Cylance, a leading cybersecurity software firm that uses AI and machine learning technology to predict and prevent cyberattacks before they happen.

The stock trades at only 3.5 times revenues. We expect BlackBerry to be acquired within a few years at 7 to 10 times revenue by the likes of Microsoft for $20 to $30 per share.

Stephen Takacsy

"I have to admit however that the assets BB has purchased, together with its own technology assets, have the potential for much higher growth. The problem is that the company is still not there yet."...(quote from article)...

To me, that does't make sense.  When you take on an investment you are looking for future value, not the present value.  Why do you think CRWD has has the huge valuation that it enjoys at present. It's revenue is $250M with $140M losses and has a valuation of ~13B. CRWD is certainly not there yet to deserve such a huge valuation.

"Never, ever invest in the present. It doesn't matter what a company's earning, what they have earned." (Stanley Druckenmiller)

"BlackBerry operates primarily in four different segments.

The Enterprise and Software Services segment (ESS) provides core software offerings, including its Enterprise Mobility suite, BlackBerry’s secure communications platform, which accounts for 31% of revenue.

BlackBerry Technology Solutions (BTS) includes its automotive software technologies, including the QNX platform, which intends to take driver assistance and safety systems to the next level by building next-generation systems; it accounts for 20% of total revenue.

The company’s licensing/intellectual property segment accounts for 27% of revenue, and this is where the company’s global patent portfolio is managed and monetized, providing it with a competitive edge as it protects its technologies as well as monetizes them through licensing agreements.

Lastly, Cylance, which accounts for 19% of total revenue, is BlackBerry’s $1.4 billion next-generation cybersecurity provider acquisition, which elevated BlackBerry’s game in the fast-growing cybersecurity industry. This was a good move, as this industry will see explosive growth in the next few years, as more and more machines are connected and as the Internet of Things industry hits its growth projections of more than doubling by 2021 (relative to 2017 levels)."

ca.finance.yahoo.com/...

BB has so much more going for it than CRWD.  One can compare CRWD to BB as they are direct competitors in only one of BB's pipeline offerings.  Why such the Huge disconnect in valutions of CWRD verses BB. I have no doubt that time with solve this disconnect...

P.S  If one has any doubt that BB is not working on future growth they can only pay attention to John Chen during the CC when he states "We have two main operation priorities and one is to step up our investment to sustain that future growth. We are -- some of us are already working on the next fiscal year. So -- only Bryan works in the current fiscal year. Bryan’s probably on the call and that put a little bit more pressure on him.

And we will focus on integrating Cylance, which will yield a much longer-term shareholder value and we are off to a really good start on integration, products, people, so I am very pleased with that."

Zach 800, Seeking Alpha contributer

Postscript

The financial industry cater to the great unwashed (people who don't know about the markets). They try to market flashy, seeming easy ways to invest in stocks (Quant ratings that do the investor's thinking for them). As Gordon Gekko observed in the eighties film, Wall Street...'The most import commodity I know of is information'

And the more unobserved that information, the better...money is made in the dark, not the light.

Update...Dateline August 6, 2019...

We also increased our Blackberry position given how much it pulled back from a strong first quarter performance. Our thesis is that Blackberry is grossly misunderstood by the market. Investors still believe that it is a dying company. While its handset business is going to zero, its other segments are growing. Blackberry is entirely a software company today and is a global leader in enterprise security and encryption, imbedded operating systems in 150 million cars, licensing (owns 37,000 patents) and cybersecurity using predictive technology such as AI and machine learning with its recent purchase of Cylance. With the proliferation of connected devices and endpoints for hackers to attack, Blackberry’s goal is to become the dominant provider of software solutions to protect these vulnerable endpoints. The market’s current obsession with faster growing yet unprofitable companies has created attractive opportunities among the unloved like Blackberry. As its high margin recurring revenues grow and flow to the bottom line, Blackberry’s valuation multiple should expand and drive its share price significantly higher over the next 2 to 3 years, becoming a target for the likes of Microsoft.

Stephen Takacsy, Jordan Steiner, Tony Boeckh,

Lester Asset Management,

Second Quarter Letter, 2019