Tuesday, 23 June 2015

Blackberry - I am still not convinced

I mildly provocatively called my last write-up of Blackberry in March 'positive earnings but too much of a leap of faith'.  

A good call?  Well from March when I made that call to yesterday's (Monday) close it looked a solid call.

However look at Blackberry shares in the pre-market as noted by Fast FT:

'The once high-flying software maker reported an adjusted loss of 5 cents a share for the quarter to May 30. That was wider than the 4 cents Wall Street analysts had forecast (however) BlackBerry said revenues from its software business more than doubled from the prior quarter to $137m"

Regarding the software business back in March I noted that 'I thought the key to this company were the infamous handsets so beloved of the professional classes...a good few years ago?

They still sell them and the company confirmed that 90% of all phones sold in the quarter they were reporting on today were new generation phones that have higher margins.  But...let's put this into context: 

'in 160 carriers, 7,000 stores'
1.3M Units = 0.4% mkt share

This is clearly not groundbreaking and unsurprisingly it is not the key to the stock's future...this is on the software side (effectively a business selling software that helps companies manage the handsets their employees have)...'

Additionally John Chen the CEO noted:

Our financials reflect increased investments to sales and customer support for our software business. In addition, we are taking steps to make the handset business profitable.

You can see what he means with reference to increased investments and the need to make handsets profitable. Even over US$100m of free cash flow generation during the quarter (looks as if they will be free cash flow positive at least for FY15 as they target), there are just not a lot of earnings for a US$3bn EV.  

My conclusion?  Same as last time I wrote up the stock:

'Pulling it all together Blackberry remains too much of a hope investment for me at prevailing in terms of the value you attribute to the ongoing business.  Undoubtedly there is some value in the intellectual property and the like but that is never easy to calculate precisely.  I will keep on looking at the stock as the next couple of quarters tick through but, for the moment, I remain on the sidelines with no position'

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