BlackBerry Ltd (BBRY) Stock Is Being Underestimated by Inves BlackBerry Ltd (BBRY) Stock Is Being Underestimated by Investors
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https://investorplace.com/2017/04/blackberry-ltd-bbry-stock-underestimate/#.WOK544GGPIV
Even after BlackBerry Ltd’s (NASDAQ:BBRY) results beat expectations on Friday morning, most investors and pundits still seem to be lost in the trees of the company’s financial results and near-term outlook, while ignoring the forest of the company’s tremendous, longer term opportunities.
Specifically, BlackBerry has made huge strides in several tech markets that are either rapidly growing, or huge, or both. Among these are connected autos, the cloud and IT security.
Moreover, a number of the company’s products in these areas have been validated by huge enterprises, and its CEO previously successfully turned around a company that was on the brink of failure. Going forward, BBRY should be able to more fully exploit the rapid growth of the markets it has entered and the strength of its products, enabling its software revenue to rapidly accelerate.
Consequently, investors should buy BBRY stock, which currently has a compelling valuation.
Tech Growth Catalysts for BBRY Stock
BlackBerry’s QNX operating system for connected cars has a market share of about 47%, as Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM) , and Audi all utilize it. Ford recently further validated the strength of BBRY’s connected car technologies by agreeing to hire 400 BlackBerry workers to further develop wireless systems.
According to BI Intelligence, “the connected-car market is growing at a five-year compound annual growth rate of 45%,” and 75% of all cars shipped in 2020 “will be built with internet-connection hardware.”
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As BlackBerry CEO John Chen indicated, BBRY can make much more money by building new apps for cars and charging fees for them. He also plans to provide components of self-driving vehicles. If and when self-driving cars take off, Blackberry is going to make a great deal of money from in-car apps and the components it’s developing, providing a crucial growth catalyst for BlackBerry stock.
Cybersecurity is a huge market, as it’s expected to jump to $202 billion in 2021 from $122.5 billion in 2016, according to research firm MarketsAndMarkets. The U.S. government recently validated BlackBerry’s security solutions by granting the company FedRAMP and Authority to Operate certificates.
Additionally, Chen reported on March 31 that, “Giuliani Partners selected BlackBerry Secure as the underlying software platform to support its consulting practice for government enterprise customers.” Not only is the CEO of Giuliani Partners, Rudy Giuliani, a confidante of President Donald Trump, but he is going to advise the administration on cybersecurity.
It seems like BBRY stock has gained an inside track on cybersecurity deals with the U.S. government. Furthermore, according to Chen, the U.S. certifications will enable the company to sell security to “a lot of (other) governments.” Finally, BlackBerry’s security business seems to be gaining traction outside of governments, as it won security deals with several large companies last quarter, including Deutsche Post DHL, Nationwide Mutual Insurance and Mitsubishi UFJ Financial Group.
According to Global Market Insights, enterprise mobility management, another major area of focus for BlackBerry, was worth over $3 billion in 2014 and is expected to grow at a compound annual growth rate of over 30% from 2016-2023.
Last quarter, BlackBerry, in partnership with China Mobile Ltd. (ADR) (NYSE:CHL) won a 10,000 seat EMM pilot with China Co-Op Group, as well as an EMM deal with Vodafone Group Plc (ADR)’s (NASDAQ:VOD) German unit. To the extent that BBRY’s EMM business can deepen its penetration of large geographic markets like China and Germany, the company’s financial results and BBRY stock will rise significantly.
Finally, BlackBerry recently entered the fast-growing Platform-as-a-Service, or PaaS, computing market, which Gartner expects to be worth $14.798 billion in 2020, up from $7.17 billion in 2016. Specifically, BBRY launched BBM Enterprise SDK for the communications platform-as-a-service market.
The product, which the company says enables developers “to securely build enterprise-grade messaging, voice, and video functionality into their applications,” puts it “in a solid position to benefit from the growing demand for embedded communications services,” BlackBerry quotes Raul Castanon-Martinez, an analyst at 451 Research as saying.
More importantly and concretely, 15 independent software vendors, have already agreed to use the system, which became available in early February Chen reported on March 31.
BlackBerry’s Rock Star CEO
This is not the first time that Chen has taken the helm of a company that was on the verge of failure. In 1998, he took over enterprise service provider Sybase which one research firm said had a 70% chance of failing. When Chen became CEO, Sybase was reportedly worth $362 million, and it was sold for $5.8 billion in 2010.
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Under Chen’s leadership, Sybase moved “into profitable markets,” and observers questioned the viability of the strategy. Sound familiar?
BBRY Valuation
Even after Friday’s rally, BlackBerry stock is trading at less than three times the company’s sales.
Conversely, Mobileye NV (NYSE:MBLY), whose products enable autonomous driving, was recently acquired by Intel Corporation (NASDAQ:INTC) for 31 times its estimated revenue, according to Forbes. Even if BlackBerry is only valued based on its high-margin, high-growth software and services revenue, and no value is given to its other assets and businesses, the Mobileye deal suggests that BBRY stock is vastly undervalued at current levels.
Specifically, if the $193 million in software and services revenue that BlackBerry generated last quarter is multiplied by four and then increased by 14% (the midpoint of the company’s 13%-15% growth guidance for fiscal 2018), the result is $880 million. At the 31 times multiple awarded to Mobileye, that would equate to a market valuation for BlackBerry stock of $27.28 billion, versus BlackBerry’s current total valuation of $4.5 billion.
And IT security company Palo Alto Networks Inc (NYSE:PANW) is trading at a price-to-sales ratio of 6.7. At that multiple, the enterprise value of BlackBerry, again just based on its software and services revenue, would be $5.83 billion, almost 30% above the current level of BBRY stock.
Based on Blackberry’s growth opportunities, the track record of its CEO, and the valuation of the company, it’s definitely a great idea to buy BBRY stock at current levels.