Blackberry – Brutal Maths.

Another round of bean counting reveals a dire outlook.

• The rotating doors are still turning as the old guard exits to be replaced with John Chen’s chosen crew.
• Latest to go is Andrew Bocking who was responsible for BBM.
• In contrast to most of the others, it looks like Andrew Bocking has left of his own accord.
• This is worrying for both what the inner circle think of the prospects of a recovery and for the future of BBM itself.
• This asset will be folded into Global Enterprise Solutions under John Sims which to me is as good as a death sentence.
• BBM has 80m users virtually all of which are consumers.
• With this asset inside Enterprise, updates and features catering towards consumers will be non-existent pretty much ensuring that users will be leaving the platform.
• BBM is the only reason for anyone to buy a Blackberry device and now that all the people who use it will not be catered for, the decline will be short and sharp.
• The worst part of it is that all of these users will be migrating to other IM systems and in all likelihood will be buying an Android device next time around.
• Radio Free Mobile currently forecasts that Blackberry users will decline to 31m by the end of 2014E from 65m at the end of 2013A.
• On the current trajectory, RFM expects device shipments to hit zero in 2015 and for the last user to leave the ecosystem in the same time frame.
• On this basis, I continue to believe that the value in Blackberry is: the patent portfolio, real estate and the service business.
• This latest turn of events leads to me to now value BBM at zero leaving $1bn for the patent business and $500m for the service business (see here).
• If I assume that the device business is worth negative $1.5bn, the net cash balance is $2bn and the real estate is worth $300m ($300 / sq ft) then the enterprise value of BlackBerry is $2.3bn.
• This equates to $4.37 per share, less than half of the current share price.
• Investors have benefitted from optimism surrounding a John Chen led recovery but with this much downside, it is time to head for the exit.