BlackBerry – Counting beans

Going private at $4.7bn is the absolute best case.

• The bean counters are out in force, and with Fairfax’s deadline approaching everyone is trying to work out what BlackBerry is actually worth.
• The assets for consideration are:
  • The device business
  • The service business
  • BlackBerry Messenger
  • The patent portfolio
  • $2.6bn in cash.
• It is consensus that the device business is worth zero but I think it could actually be worth less than that.
• BlackBerry 10 has been an unmitigated disaster and the BB7 devices are now so dated as not to be fit for purpose.
• I am assuming that this business is closed down or at best given away with a chunk of cash to give anyone, brave enough to take it on, time to turn it around.
• Either way, to a BlackBerry shareholder this part of the business is worth negative $1bn.
• The service business is in similar trouble as it is based on BlackBerry subscribers.
  • Firstly, there are many competitors and the price for this kind of service is rapidly approaching zero.
  • Secondly, if the device business is dead then the service business is probably, also dead.
• If I assume that in three years revenues hit zero then this business is worth $500m best case if it is managed for cash.
• BlackBerry messenger is a crown jewel but it is rapidly being overhauled by Line, WhatsApp, WeChat and so on.
• Their subscriber growth is extremely high whereas BBM has been static for over a year.
• On that basis I am only going to pay a fraction of the valuation for BBM if I buy it as a stand-alone business.
• Hence I would value BBM at around $200m.
• The patent portfolio is not nearly as valuable as anyone thinks.
• This is because:
  • The timing is wrong. The perfect storm of 2011 created a bubble for patent valuation that is unlikely to ever be seen again.
  • BlackBerry’s patents are not very fundamental to the applicable technologies.
  • It has some essential patents but these came from second line creators of technology and are already heavily encumbered.
  • BlackBerry is a distressed seller which will have a fundamental and negative impact on the price paid.
• Consensus is using historic deals to make its assumptions of up to $3bn which for the above reasons, I believe is fundamentally flawed.
• Hence, I am valuing the patent portfolio at $1bn.
• When I add this lot up I arrive at a valuation for BlackBerry of $3.3bn in the best instance.
• My gut says that the real value could be well below this as I may have been overly generous on both BBM and the service business.
• This is equivalent to $6.32 per share.
• With the share price at $8.25, there is only one option for anyone unlucky enough to be still holding the stock.