With its stock flagging, rumours are once again swirling that BlackBerry (BlackBerry Stock Quote, Chart, News TSX:BB) will be acquired. The real question, says one observer, is who might be the suitor given the fact that the Waterloo-based company’s business has completely changed.
BlackBerry ended 2019 on a good note with stronger quarterly results in December but for those fans hoping for more upside in 2020, there are lingering questions about the company’s business that need answering, according to Bruce Murray, portfolio manager for the Murray Wealth Group.
“I think one of the things here is that BlackBerry has moved away from their proprietary software in the phone system which had huge margins and they’re getting into the automotive business,” said Murray, in conversation with BNN Bloomberg on Thursday.
“And the automotive business is great for, ‘Yeah, we’ll give you a contract for every GM car. The price is going to be X and then next year you’re going to give us five per cent less and then the next year five per cent less [and so on],’” he said.
“Also, a lot of the technology in cars still requires the 5G network to be in place, and we’re probably ten years away from actually having this stuff on the road. So, that’s possibly what’s hitting BlackBerry, that the timing is out there and when you get there, you’re going to get great volume but not a great price,” Murray said.
BlackBerry impressed with its latest quarterly earnings which beat analysts’ estimates for both revenue and profit. BB’s fiscal third quarter saw revenue surge 18 per cent to $267 million ($280 million in adjusted revenue) while its non-GAAP adjusted EPS came in at $0.03 per share. Analysts had been expecting earnings of $0.02 per share and adjusted revenue of $276 million. (All figures in US dollars.)
Much of the growth came from the company’s software and services segment which saw revenue up 21 per cent year-over-year to $262 million, while adjusted revenue from BlackBerry’s Internet of Things segment dropped three per cent. Revenue from the company’s cybersecurity business, Cylance, acquired last year, came in at $40 million.
The market certainly liked the results, boosting BB’s share price by ten per cent on the quarterly results. The stock was still down for the year, however, finishing 2019 down 14.5 per cent. Since early January 2018, the stock is now down 53 per cent.
BlackBerry announced on Friday another buyer of its QNX operating system, this one being BC-based Damon Motorcycles which will use the QNX platform across its line of electric motorcycles.
“With its advanced collision warning system, Damon’s new Hypersport Pro is a game-changing model for the motorcycle industry,” said Grant Courville, BlackBerry QNX VP, Product Management and Strategy, in a press release. “BlackBerry QNX is leading the way in next-generation mobility systems by providing a safe and secure platform for connected vehicles and beyond and we’re proud to work with Damon on this exciting advancement.”
Murray says that judging by the track record of CEO John Chen, BlackBerry is now a possible takeout target, although a sale might not happen anytime soon.
“As to selling the company, Chen has done that in the past. If he does that, I’d assume that a buyer would have synergies that they can put in,” Murray said.
“I don’t know what the premium would be. We don’t own BlackBerry but I can see that unfolding as a possibility but I think it’s a ways away,” he said.
A recent article in Forbes speculated that BlackBerry might be acquired for its intellectual property, the “meaningful upside” it has in the automotive space, and because the stock is cheap. The article said potential acquirers could be auto makers or device companies.
Of course, rumours of a sale of BlackBerry go back at least a decade, with Microsoft, Fairfax Financial, Samsung, Lenovo, and Xiaomi all rumored to be buying the company formerly known as Research in Motion at one point or another.
Of course, all of those potential acquirers were looking to acquire a faded handset maker, not an automotive and security concern. A list updated for 2020 would almost certaintly need to include names such as Mercedes and Ford, whom BlackBerry has partnerships with, and names such as security giants Check Point Software and Symantec.