Friday, 25 September 2015

Blackberry - not compelling for me

The last time I wrote about Blackberry (link here) I concluded that:

'I remain on the sidelines with no position'

Today's Q1 numbers from the company have some good and bad points with the better points centred on continued growth of the software business and free cash generation...and the negatives being the continued non-GAAP operating losses:

Such differentials were also apparent in the notes I made from the conference call as reproduced below: 

Positive cash flow 6th quarter in succession

Positive ebitda 7th quarter in succession

Software ‘continues to expand’.  4th consecutive quarter of double-digit revenue growth

‘not satisfied…especially about our handset business’

Confirming Android phone launch called 'Priv' with enhanced security capabilities: ‘working with a lot of people including Google’

‘(Priv news) leaked so thought best to let everyone know’

Want to grow devices profitably, grow software

M&A important

‘differentiating on security’

On 'Good' acquisition just completed believe combined best in EEM space

Think cash flow and earnings accretive in first year

Buyback goes from 6m shares to 21m shares

upping buyback by additional ~2.9% of the company

"Sorry, BB10 fans. It sounds like BlackBerry's CEO is setting the groundwork up to scrap its own OS. $BBRY"

US$2.07bn net cash

‘Q2 numbers lower than I expected’

The last few months above act as a pretty good super summary.  Still got a lot of net cash (EV around US$1.6bn using the above) BUT ex the last gasp Android launch Blackberry remains prospectively all about software potential and (interestingly undiscussed on the conference call) patent book monetisation hopes.  Net net however progress remains pretty shabby.  

Still at the above EV suggestion given the share's dire performance (wonderfully shown versus Apple in the chart below - h/t @natebecker) the shares trade at less than x3 EV/ebitda for the above call options. 

This is the right way to think about the company: a call option.  I am not in a huge rush to invest but the main theme of the above is that I doubt if Blackberry will be an independent company in a year or so's time.  As with Nokia that implies there probably is a trade here...but it is not a hugely compelling one to me I must admit - especially as there are lots of other interesting companies to invest in out there.  

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