BB - BlackBerry

[saltybit]

new book coming out on BBRY http://www.amazon.com/Losing-Signal-Extraordinary-Spectacular-BlackBerry-ebook/dp/B00Q20ASVS

[kfh227]

Blackberry's story is going to be amazing.  It's a bit early out of the gate to have one come out now though.  And it is probably full of inaccuracies.

 

Rise, yes.

Fall, yes.

 

Story over, no.

[CalvinL]

 

That's my takeaway from the call as well. BES12 isn't performing as well as publicized. But he did raise the software revenue target from 500mill to 600mill. I guess he expects more revenues from the "virtual sim" solution and QNX

 

 

Also I think, if you see them spending their cash hoard on multiple acquisitions this year, you can assume that BES12 isn't doing great.

 

 

He mentioned in the call that bbry is going to grow to the $600M target both organically and inorganically. I think JC is hedging his own promise with this comment - using $1-2 Billion cash hoard to buy 600 million software revenue isn't all that hard, and I think that will be the primary use of that 3B going forward. Another sign is the continuous reduction in R&D - looks like the strategy was to use the saved-up cash to buy new tech rather than to develop them in-house.

 

The trick is to buy the right kind of technology that bolt on well with the existing ones. I think the key thing to watch is the quality of these software acquisitions - can these new acquisitions help with their sales pitch to enterprises? (competitors feature match, unique but highly needed services, BES12 or IoT platform bolt-on) Do they expand competitive advantage in the security business? With BBRY bigger sales force and its wide distribution channels, it's not impossible to further grow these new acquisitions sales by a few multiples.

 

If JC could execute this well, he could turn BBRY into an enterprise software platform, delivering security services of all kinds. A one stop shop for all communication security needs.

 

However, BBRY will have to do some shopping before that could happen. The timing and the size of the return is uncertain at this point. The whole communication security thing look a lot like the door lock business - you won't think much about a more secure lock until either you or your neighbour's home get broken into. Worse is there are other companies that claim to have something just as secure. The IoT world is still immature and revenue is still immaterial. We might not see real money rolling in until 5 years after.

 

But...when and if it happens, it could be explosive.

 

BBRY is trading at 5-6 billion dollars today. If JC could really get to 500-600M software revenue goal this year, assuming a 60% margin on that, that's 6% just the software business alone. Forget about the keyboard phone business, forget about the old BB service fees, you get all those for free.

 

So there are uncertainties...there are opportunities...but I see little risk for $5-6 billion with its current strategy. If you are into the security tech gambit and don't mind waiting (<6% return while you wait) I think it's a good price to get in.

[TwoCitiesCapital]

Looks like there was some headway on software revenue this quarter. Shares were initially up by quite a bit, but opened down.

 

http://finance.yahoo.com/news/blackberry-shares-climb-revenue-slide-113933325.html

 

I've initiated a small, speculative position again around $9 now that the software revenue does seem to be picking up momentum.

[CalvinL]

I was planning to share my own analysis here but Charles Arthur posted an excellent piece that I don't think I could do better. For those of you looking to invest into BBRY at this stage, he points out a few shortcomings that we should all know about.

 

https://theoverspill.wordpress.com/2015/06/26/blackberry-might-have-no-bb7-users-left-by-february-2016-and-thats-a-big-bad-problem/

 

The piece is solid and fact-base, and is in line with my own analysis, but I would add a few things that's purely speculative:

 

1. John Chen has a record of pulling rabbits out of his hat to surprise investors. He did this by layering a series of plans, one backing up another in case of failure, to achieve his goals. He doesn't necessarily communicate all his other plans thoroughly, but as time goes by it tends to show up one after another. At least I would not bet against him.

2. With $3 Billion in the bank and solid assets that could be monetized (as shown in the Cisco deal), it's not mission impossible to buy or license another 200 million worth of gross profit to get to break even. It would take a lot of misfortune to get to crisis point. I think that's a source of JC's confidence

3. Handsets - JC didn't deny a secured Android phone, and that if he could move 1.5 million more android phones (Moto G alone is 6 million), they're already break-even on handset.

4. Beyond handset - And even if that fail, how about licensing a secured Android OS to all other brands? Without the handset division, the cost base would be much lower. The software alone is a wonderful business. Charles was even more bullish on that than I am - pointing to a 84% gross margin. I would say 60% without the non-recurring licensing revenue, but still very profitable.

 

The greatest thing about tech companies is that the possibility is endless, especially when you have the right manager on top and a solid technology asset base.

 

Again...purely speculative.

 

 

[JayGatsby]

3. Handsets - JC didn't deny a secured Android phone, and that if he could move 1.5 million more android phones (Moto G alone is 6 million), they're already break-even on handset.

4. Beyond handset - And even if that fail, how about licensing a secured Android OS to all other brands? Without the handset division, the cost base would be much lower. The software alone is a wonderful business. Charles was even more bullish on that than I am - pointing to a 84% gross margin. I would say 60% without the non-recurring licensing revenue, but still very profitable.

 

Looks like #3 is finally confirmed: http://www.techradar.com/us/news/phone-and-communications/mobile-phones/blackberry-venice-release-date-news-and-rumors-1302275 . The recent product launches they've had (Classic and Passport) have actually been pretty nice devices but without the entire app universe they've been DOA. There have been some pictures floating around recently of the Passport running Android, but who knows if that's true / when it will happen.

 

#4 has been in the works with Samsung (http://www.wsj.com/articles/blackberry-samsung-expand-partnership-1425231001) and also Android for Work, although I guess it remains to be seen how big this business can actually become.

[Alekbaylee]

BlackBerry to acquire Good Technology for $425 mln

 

http://www.reuters.com/article/2015/09/04/goodtechnology-ma-blackberry-idUSL4N11A2QK20150904

[kfh227]

Venice is rumored to be a 5.5" screen.  An 808 processor.  3 GB ram.  It's going to be nice.  AS for OS.  It is expected to be running Android (Lollipop).  Also expected to get Marshmallow on it s soon as possible.

 

Whether or not there will be a BB10 variant is up in the air.  No one knows.  Some think that you will be able to put either OS on the phone.  You could even change between the two at any time but only one OS will be on the phone at any time.  Tehre will not bean option to choose at boot time.

 

There is a rumor that it might be a version of Android that runs on top of QNX instead of Linux.  Kiss rooting Android goodbye (Android malware has existed in the past that would do this to you without you knowing).  This would require swapping kernals.  Both are Posix compliant so it might be possible.  I honestly don't know.  Or care.  As an investor, I just care that end users will get Android.  If there is one thing I learned about people from owning BBRY stock ..... Joe Consumer does not care about security.  Which blows me away.  I thought by now people would get it but they don't.

 

I want it unless it is something like $700.

As for Passport getting it, I doubt it.

[JayGatsby]

BlackBerry to acquire Good Technology for $425 mln

 

http://www.reuters.com/article/2015/09/04/goodtechnology-ma-blackberry-idUSL4N11A2QK20150904

 

Here's Good's S-1 if anyone's interested: http://www.sec.gov/Archives/edgar/data/1089196/000119312514198867/d520327ds1.htm#fin520327_2

 

I guess they'll get some pretty good synergies on the SG&A side. Tough deal to value. It helps that Watsa is on the board, althouh his risk profile in the convert is different.

 

Hopefully Venice / Android can bring some profit to hardware. The US carriers seem supportive for whatever reason. For personal security I think that tends to be more at the app level. Bank apps need to have top notch security, but there just isn't as much I'm personally concerned about. For enterprise the ability to manage the device seems pretty essential, whether it's a departing employee, a lost device, or some other risk.

 

Looks like the main goal of the acquisition is to get better penetration into iOS: http://press.blackberry.com/press/2015/blackberry_to_acquire_good_technology.html

Nice to see they think it will be cash flow positive. I gues that comes from leveraging shared resources. The cash burn previously was pretty high. MobileIron is burning cash too so will be interesting to see what happens there.

 

Looks like at one point Good raised money at a valuation of $800M (http://fortune.com/2014/05/14/will-the-good-technologys-ipo-be-any-good/), which was before they bought BoxTone for ~$77M. At least on a relative basis BBRY is getting a good deal!

[TwoCitiesCapital]

BBRY misses on revenues and on earnings. Revenues have fallen below the $500M mark that John Chen said wouldn't happen. He admits disappointment with the handset division, but has announced and android phone called "Priv".

 

Software revenue is up in the 19% during the quarter. This doesn't include either of the recently announced acquisitions as they haven't closed yet. Company is expecting modest revenue growth in remaining quarters and a return to GAAP profitability this year.

 

http://business.financialpost.com/investing/global-investor/blackberry-ltd-loss-wider-than-expected-in-second-quarter

[DCG]

but has announced and android phone called "Priv".

 

 

I thought they were done with releasing phones. Seems like they haven't learned their lesson yet.

[JayGatsby]

but has announced and android phone called "Priv".

 

 

I thought they were done with releasing phones. Seems like they haven't learned their lesson yet.

 

Chen has been pretty consistent with his message. They're going to continue to release phones if they can make it profitable. They lost time by trying to get BB10 to stick. From the conf call it sounds like making Android as secure as BB10 has been the main concern. BB10 always seemed like an uphill battle because their wasn't the full range of apps including some important ones. If they don't get any traction with the Priv they'll have to reassess. They're already shrinking their group: http://www.theregister.co.uk/2015/09/23/blackberry_layoffs_200_let_go_project_venice/ . Hopefully that reflects the intent for a full transition to Android where they aren't developing a full OS on their own. I guess we'll see. Digression, but personally I find Android way more powerful and productive (mainly because of widgets), but iPhone continues to dominate (brand?). iPhone seems like a better consumer phone because it's easy, but I find it tougher to stay organized with it.  On Android I had my to-do list and calendar on the home screen so I always knew what was coming up.

 

I do really like the combination of Chen and Watsa. Chen has some pretty aggressive goals for where he wants the company to be but maintains profitability. I like having Watsa evaluating the acquisitions / capital allocation. Now we just need some of this growth to start materializing!

 

This part of the call was weird.. I had the same confusion:

John S. Chen

Well, it's -- so if you think about -- we're expecting $160 million GAAP revenue for the next 12 months, I mean, the 12 months after we closed, sorry, 12 months after we closed, so it's November till November, I suppose if we closed it in November. And in 1 year, we'll be accretive, both cash flow and profitability. Then you know that we -- we're not be able to spend $160 million. That's not the path, right? So in -- I think, initially, we could take 30% out of that cost infrastructure and then we will continue to take down in expenses until we reach that point in Q4. So I don't -- we don't really disclose the actual number of Good because I don't think that's appropriate for me to do that. You have to kind of tick around that a little bit because they're not a part of us yet.

 

Todd Adair Coupland

Okay, okay. I thought I'd seen a number out there of $240 million that was in their filing but --

 

John S. Chen

Maybe.

The $160 was in their S-1 for 2013. The amended S-1 showed $212M for 2014.

 

Will be interesting to see what happens with MobileIron. They burn through a lot of cash although they have almost 2 years of dry powder on their balance sheet. Stock has really been getting hit hard. Tough to sell an IT department on your product if your staying power 2 years from now in question.

 

[Guest bksimon]

A few observations...

 

The Priv seems to have good positioning -- it addresses a weakness of Android (security), adds a presumably good keyboard to an Android phone and opens up a vast market (which is also competitive). We'll have to see how much Blackberry is able to customize the UI for the Priv. Blackberry loyalists comment that they love the Hub and certain core BB apps; meanwhile some complain about Android having a shoddy user experience.

 

The Priv seems like the phone that could save the handset business. I'm reading excitement not just from the loyalists but others who like the idea of an Android phone with a quality keyboard.

 

This could have come much earlier, like two years ago. I suspect Blackberry had such wounded pride that it did not want to touch Android.

 

I continue to find Chen's vision appealing, and it is taking shape in the acquisitions. It seems Good Technologies was acquired at a quite reasonable price although I expect it will be at best mildly accretive to the bottom line in the next couple of years. But they have taken out a competitor and demonstrated seriousness of purpose in the mobile security arena. I expect they can offer solutions that are greater than the sum of AtHoc, Good, Movirtu and SecuSmart as well as QNX and BBM.

 

Chen had an interesting point towards the end of the question period today. An analyst asked why growth in EMM has apparently stalled (citing MobileIron). Chen replied that core EMM services are probably going to be free (note how Apple has gradually added more security features to iOS over the years) -- but Blackberry can offer added services that people will pay for. This is exactly what's happening with the Priv (in a consumer context).

 

Blackberry needs to be more aggressive in marketing and public relations. The company has developed an ambitious yet credible vision and the pieces are coming together. They have to go back out and explain to the world what they are doing. It's not a device company. BlackBerry's focus is trust, security, privacy, innovation, gluing together devices and services in a way that supports our personal values and enterprise requirements.

 

Chen should be seizing every opportunity to trumpet this (and he does do some of this). The Priv announcement in the WSJ is the right idea. Turn up the volume.

[TwoCitiesCapital]

I think the most bullish thing for me was the share repurchase that was expanded.

 

They announced a 12M share repurchase authorization back in May. John Chen mentioned that $47M had been used for repurchases and that there was about 6M left on the original authorization. In addition to that, Blackberry has announced an increase of an additional 15M shares authorized to be repurchased. Now, I don't want to count the chickens before they hatch, but I think it's reasonable to believe that Chen has already been, and will continue to, act on this authorization to repurchase the entire amount of the 21M shares.

 

1) First 6M shares were repurchased at levels higher than the current price as Q2 prices fluctuated between $9.80 and $7.59 (prices are in USD - you could adjust for CAD exchange rate). Current price is $6.30.

 

2) Chen has stated that he wants to keep $2.5B in cash. That leaves them $1.25B in cash to cover the acquisition of Good Tech. ($425M), Athoc (undislcosed), plus the the remaining 21M shares. Even assuming Blackberry blew the entire load in the quarter prior to announcing results at prices significantly higher than now, it's hard to come to a scenario where it would require more than $150M to repurchase the entire amount of shares. Unless if Athoc is a massive drain on cash ($700M or more), then Blackberry has the resources to repurchase all shares in the next quarter or two without breaking cash buffer.

 

3) John Chen is not stupid. He hasn't been repurchasing tons of shares the entire time he's been CEO. He's offset some dilution, but this is the first real appreciable share repurchase. 21M shares represents 4% of outstanding shares and he bought repurchased an additional 1% in the prior quarter alone. What does he see now that allows for him to authorize, and act on, a repurchase of 5% of the companies shares in relatively short order that he wasn't doing before? I mean, free cash flow has been stable for a few quarters now so I don't think that's it.

 

Anyways, basically the way I see it is that Chen may have the resources, cash flow, and negative news in which to repurchase a large portion of shares at prices between $6-8 that will offset a large amount of the expected dilution from the shares that will later be issued at $10 when the convertibles come into play.

 

[zenith]

TwoCitiesCapital,

 

A couple of things.

First Athoc was dislcosed and was 250M with about 50+M in annual revenues, and the current cash before the GOOD and Athoc waas 3.35B so if we assume the total of 650M (GOOD was 425M but they had 25M in cash) then they have roughly 2.7B in cash after these deals and assum the generate about 50M in OPS than they will have about 250M to play with to buy back shares, make small add on acquisitions, etc.

They bought back the 6M shares for an average price of $7.83 a share.

They can buy back the converts as of next November at a 15% premium, and they retire some it depending on the stock price.

[TwoCitiesCapital]

TwoCitiesCapital,

 

A couple of things.

First Athoc was dislcosed and was 250M with about 50+M in annual revenues, and the current cash before the GOOD and Athoc waas 3.35B so if we assume the total of 650M (GOOD was 425M but they had 25M in cash) then they have roughly 2.7B in cash after these deals and assum the generate about 50M in OPS than they will have about 250M to play with to buy back shares, make small add on acquisitions, etc.

They bought back the 6M shares for an average price of $7.83 a share.

They can buy back the converts as of next November at a 15% premium, and they retire some it depending on the stock price.

 

Thanks. Hadn't realized Athoc had been disclosed. The initial announcement that I saw said that the terms hadn't been. I was also including receivables and etc. in my cash figures which is why it's higher. Basically we're saying the same thing though - they have plenty of cash to be able to finish the authorization and had previously repurchased a large number of shares at higher prices. So basically, I think the repurchases continues.

 

I certainly wouldn't mind seeing them repurchase the convertibles. I need to think through it to determine at what value it makes sense for them to repurchase shares and what value it makes sense for them to repurchase the convertible debt instead. If they never repurchase the converts, they can capitalize on the $3-5 spread on the future re-issuance (assuming they do get exercised, there is a chance they wouldn't be). So the benchmark to beat is whether or not the repurchasing of convertible debt makes more sense on a per share basis than the potential spread they could make by repurchasing the equity and re-issuing. We'll see what price the equity trades at next November, but right now I'm pretty content that they're repurchasing a large number of shares and think that it should be a pretty big signal to the market.

[JayGatsby]

Has anyone seen a good analysis of the patents? Trying to figure out what's left if everything (Priv, Android, EMM, QNX, BBM) is a flop and they sell the patents. I've seen an analysis saying Nortel had 6,000 patents and sold for $4.5B so the Blackberry portfolio is worth that much or more (the number of patents seem to change). Seems like you actually have to have a technical understanding of what the patents actually cover. Clearly these patents don't prevent others from making working smartphones or BBRY wouldn't be where they are today.

 

[Guest bksimon]

Chen made some comments in the last conference call about monetizing patents. I recall he said they had to steer a course between, on the one hand, enforcing patents through legal channels or on the other, raising revenue by allowing intermediaries to collect licensing fees from users of the patents. The risk of litigating is that you can incite a costly war because you could get countersued.

[zizou]

is anybody else surprised that gotham (joel greenblatt's magic formula) mutual funds own blackberry shares?

[Guest bksimon]

Chen in The Verge: Blackberry has to sell 5 million phones a year to stay in the handset business.

http://mobilesyrup.com/2015/10/08/blackberry-will-stop-making-handsets-within-in-a-year-if-the-priv-fails/

[redhots]

This is a great 1/2 hour interview with Chen at Code/Mobile.    Tons of candid remarks about where BBRY is going, why they are purchasing Good, etc...

http://recode.net/2015/10/10/full-session-blackberrys-john-chen-talks-about-its-uncertain-future/

 

 

 

[JayGatsby]

This is a great 1/2 hour interview with Chen at Code/Mobile.    Tons of candid remarks about where BBRY is going, why they are purchasing Good, etc...

http://recode.net/2015/10/10/full-session-blackberrys-john-chen-talks-about-its-uncertain-future/

Thanks. I do appreciate his candor. Will you stay in the hardware business? Yes, if we can make money at it. Why are you still in the hardware business? Because we think we can make money at it.

 

All the balls he's juggling seem to make sense. Hopefully he finds something he can make money at!

[Alekbaylee]

http://blogs.blackberry.com/2015/10/tempest-in-a-teacup/

[Phaceliacapital]

If the Priv sells better than Classic and Passport, it may keep the phone business going, BGC Financial Colin Gillis told Bloomberg. "It doesn't take a lot of phones to really move the needle for this company," he said. 

 

http://www.fiercewireless.com/story/blackberry-bets-security-privacy-set-priv-apart-question-whether-consumers/2015-11-03

[JayGatsby]

http://www.fiercewireless.com/story/blackberry-bets-security-privacy-set-priv-apart-question-whether-consumers/2015-11-03

From a consumer's standpoint I think this will be more of a test of whether people like the hardware package that Blackberry has put together (basically the slide out keyboard). It will also be a test of how their corp/gov customers react to Android (although interestingly the corp/gov market for BBRY keeps shrinking). It doesn't seem like consumers are worried about security on their phone. Personally, I'm concerned about security at the app level (bank apps) mainly.