The wild swings in the ever-evolving BlackBerry (NASDAQ: BBRY ) saga have taken a new turn. The company seemed to have struck a deal to be taken private for $9 per share, but unfortunately, BlackBerry recently announced it would abandon its plans to be taken private, instead opting to go it alone.
Financial pundits have attempted to place an exact value on BlackBerry, based on its assets and what it could likely get for itself in the event of an acquisition. However, individual investors would be foolish to play this game, and I'm reiterating my belief that investors should simply stay away from BlackBerry.
Deep structural problems remain
BlackBerry's potential buyer couldn't line up the necessary financing to take the company private. This is precisely what led me to caution investors against putting too much faith in Fairfax's agreement to take BlackBerry private in the first place. On September 24, I wrote an article advising investors to take $9 per share and run. While some were ready to celebrate the company reaching a deal to be taken private, I had serious reservations:
Specifically, I noted that Fairfax still needed to line up financing for the preliminary agreement, which was far from guaranteed. Moreover, since BlackBerry's business is collapsing, I warned that a bidding war simply wasn't a realistic scenario for a company whose sales and profits are in free-fall.
My final conclusion was that even when there was an agreement in principal for a private buyout, it was far from a done deal. I advised investors to seriously consider taking $9 per share for BlackBerry and investing the proceeds in Apple (NASDAQ: AAPL ) (NASDAQ: AAPL ) or Google (NASDAQ: GOOG ) (NASDAQ: GOOG ) , the two companies benefiting most from BlackBerry's downfall. The iPhone and Android are simply eating BlackBerry alive, and that continues unabated. Collectively, the iPhone and Google's Android-powered smartphones. make up over 90% of the global smartphone market.
For evidence of Apple and Google's dominance, look no further than their results in recent quarters. Apple booked $170 billion in sales in its recently concluded fiscal year and sold more than 33 million iPhones in the fiscal fourth quarter. And, the company's next quarter is expected to be successful, as Apple is guiding investors to expect at least $55 billion in revenue.
Google, meanwhile, generated nearly $15 billion in third quarter revenue, up 12% year over year. In addition, earnings per share soared 33% versus the same quarter last year. Google raked in nearly $3 billion in free cash flow during the quarter and now has $56 billion in cash on its balance sheet, indicating what a cash machine this company is.
The world has spoken
After the report that BlackBerry wouldn't be taken private, the company now intends to go it alone and raise $1 billion in debt financing. BlackBerry board chairwoman Barbara Stymiest said "Today's announcement represents a significant vote of confidence in BlackBerry and its future by this group of preeminent long-term investors."
Whether that's true remains to be seen, but I'm extremely skeptical. Quite frankly, BlackBerry's problem isn't financing related. A new Chief Executive Officer and $1 billion in new capital can't change the fact that BlackBerry has a clear and likely irreversible hardware problem. In other words, no one is buying BlackBerry devices—it's as simple as that.
BlackBerry wasn't profitable in fiscal 2013, reporting a $628 million loss for the year. And, despite the fact that BlackBerry should have benefited from a major new product release this year, it's still seeing business decline in fiscal 2014. Even though the company rolled out its Z10 smartphone, BlackBerry saw its fiscal first-half net loss balloon to over $1 billion, up 39% from the net loss recorded in the first half of fiscal 2013.
What's fair value for BlackBerry?
Unfortunately, investors trying to place a specific value on BlackBerry shares are likely doing themselves more harm than good. That's because a great deal of BlackBerry's assets are tied up in intangibles, such as its patent portfolio, which are really only worth what a potential buyer is willing to pay.
BlackBerry has $2.3 billion in cash, equivalents, and short-term investments, as well as $3.5 billion in intangible assets. It's true that BlackBerry's balance sheet looks sound—but remember, the balance sheet is a snapshot in time, and with every passing quarter, BlackBerry's losses are impacting its shareholder equity.
That's why, in my previous piece, I said trying to place value on BlackBerry's patents when the stock traded for $9 per share was a fool's errand, and I maintain that belief now that BlackBerry sits at $6.50 per share. Put simply, neither BlackBerry itself nor its potential buyers have an exact figure for what the company's intangible assets are reasonably worth. For anyone to think they do know seems presumptuous.
As a result, there's simply no need to gamble on whether everything will go right in order for BlackBerry to engineer its turnaround. The world has spoken: Apple and Google are the twin kings of smartphones, and represent far better investments than BlackBerry.
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