Should You Avoid BlackBerry's Thorny Future?

A year ago, analysts had hopes of a resurgent BlackBerry (NASDAQ: BBRY  ) . A new phone and a revamped operating system meant price targets of $15 to $43 from its then-price of $11. It made a short trip to $18 on this enthusiasm and hope, before its recent crash down to $6.50 on the news of a failed bid to take it private. While potentially profitable for traders, long-term investors are a bit scratched up from its thorny business.

Is BlackBerry finally worth it at $6.50 per share? Perhaps, but exercise caution before picking up shares.

Fruit left among the thicket
BlackBerry isn't in danger of an immediate death. It still has $2.6 billion in cash, and with the latest deal from Fairfax Financial, another $1 billion to stem off any decline. It has no long-term liabilities. And even though it reported a quarterly loss of nearly $1 billion at the end of September, its cash stockpile only took a $370 million hit.

With the latest deal, the company gets new leadership in John Chen. Chen took over Sybase, a struggling enterprise analytics company that was dealing with an accounting scandal, in 1998. He then turned it around to be sold to SAP in 2010 for $5.8 billion.

BlackBerry also holds a patent portfolio valued between $1 and $3 billion. At its current market capitalization of $3.4 billion, the pessimism about turning any of its current assets into more dollars is extremely high. As proven time and time again in the phone industry, though, once a company falters and loses money, it never recovers its previous market share or profit. Many of these faltering companies do end up getting bought out, however, and the question is whether such a price for BlackBerry will be more or less than its current value.

Arguments for less value
The reason why pessimism is so high is that BlackBerry may not have much beyond its patents in terms of value, and its cash could eventually wither away. Revenue is down from every region and every business, whether hardware, service, or software. With a stunted ecosystem compared to its competitors, who all have much larger cash piles to throw around, the prospect for BlackBerry to regain any semblance of its previous business seems bleak.

BlackBerry's history, then, means very little for its future. The company is cutting 4,500 employees to end up with a total of 7,000. It's selling factories and property. An investment in BlackBerry now is an investment in speculation. The uncertainty could mean its current price is cheap, but know that the chance of it becoming a leading smartphone maker again seems slim. 

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Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 06, 2013, at 2:29 PM, jhf678 wrote:

    Look at Nokia now. Blackberry is much better positioned. I think it will get back to compete with iPhone and android very soon.

  • Report this Comment On November 06, 2013, at 2:48 PM, ronbeasley wrote:

    Nice to see a blogger selling newsletter subscriptions to a second-rate service evaluating John Chen and Prem Watsa.

    I kind of prefer to take guidance from the behavior of successful billionaire investors and proven executives over the advice of bloggers with no track records or expertise, but that's just me.

  • Report this Comment On November 06, 2013, at 4:47 PM, fomha wrote:

    The best estimate of a market value from a person who was close to making a bid. Like Ex-Ceo of Apple Mr. Scully. He estimated that BB patents are worth about $1B-$1.5 Bill. So all the rest of estimates in $4.B+ range are grossly exaggerated.

    Even the new investors in the BB are portraying the same fact. In fact terms negotiated by BB with the new creditors (with such hight interest rate) for the new BB debt is closer to junk bond rating.

    One thing most people are overlooking is that $1B new money for BB is debt and not equity investing. This protects the new investors into BB ahead of the equity investors.

    The take away from this is that even the insiders, people in the know, like PW and the rest think this is a highly speculative venture. They know that current investment is sunk cost so nothing can be done about that loss (being large investors they can't even sell it without every one knowing about it) and want to project their new money into BB by only giving money as a debt.

    This way if things continue to go bad then they get their money out by putting a fire sale on the patents. And Equity investors will be left high and dry with very little if anything from fire sales.

    Being insiders they even benefit because in the fire sale they will be able to pick and choose what they want to keep or create a separate partnership to buy and use the patents to maximize the patents value.

  • Report this Comment On November 07, 2013, at 7:20 AM, TMFCop wrote:

    ronbeasley,

    Of course, you also excoriated me for saying it was highly doubtful the sale of Blackberry would go through, and yet here we are and...the deal didn't go through.

    While it's good to be confident in your investment thesis with a company, you shouldn't be so emotionally wedded to it that you're unable to handle the thought of someone criticizing that thesis.

    As smart and as good as Prem Watsa is, he's not infallible. He bet big on Canadian newspaper publishers Torstar and CanWest and lost, he also bought TIG Holdings and failed with it, as he did with Crum & Foster, a division of Xerox, which turned out to be a mess.

    He calls himself the "Canadian Warren Buffett," but really other than using an insurance company to make his investments, their styles are not all that similar.

    Hey, the man is successful, and I'd love to be as good as he is, but he's not a demigod you put on a pedestal and think everything he touches turns to gold. Sometimes he'll crap out and Blackberry is likely to be one of those times.

    Rich

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