new Reddit postReddit post Try to make some sense of the IP sale
DD
Just one ape's view, to be taken with a grain of salt or one banana.
Why would BlackBerry enter into an exclusive negotiation with a North American company for the IP sale? It could be a sale price has already been agreed to. Also it could be directly related to the FB lawsuit settlement.
Why did BlackBerry put away some of the Q4 IP revenue around $50M into contingent revenue bucket? It could be a deal has already been agreed to in Q4. IP revenue (from Q4 FY21 on) would go to the buyer.
Why is a delay for finalizing the deal? It requires regulatory approvals.
Explain why the guesstimate of $50M contingent revenue? Contingent revenue as explained by BlackBerry and understood by an ape is IP revenue put aside in a special bucket for the purpose of the IP sale negotiation. As hinted by John Chen, the majority of the IP revenue would go away and only a small part will remain from seven years of tailing revenue. It points to that currently majority of the IP revenue is generated from the IPs (mobile, networking and communication) that are on sale.
From the Q4 FY21 transcript comes directly from the BlackBerry website (always use this one and not Fool's or others' as they have transcription mistakes!)
"John Chen Yeah. Paul, that’s a good question. So, this is an unusual year. So, let’s talk about if the patent license sale goes through, we will report a one-time gain of a reasonably big number followed by a tail of up to seven years. So, it will not go away to zero. There is some recurring stuff but most of that would not be with us, but it will not be zero, but it will be quite small if the patent sale goes through, with one big year in this fiscal year 2022. If the patent sale does not go through, then the first couple of quarters will be low because as the patent sale is being negotiated right now, I actually am unable to do more other negotiation going on, so the pipeline basically is frozen, but it won’t go away. So, if the patent sale does not go through, I may have to suffer a little bit for the first couple or two or three quarters and then we will then resume the target $250 million a year of patent licensing. Does that make - did I answer your question?"
"In this scenario, we assume that negotiations and regulatory review continue for the first half and therefore, we expect revenue to be limited in the range of $10 million to $15 million per quarter. However, we believe that the completion of the transaction will be beneficial to our shareholders."
https://www.blackberry.com/content/dam/blackberry-com/Documents/pdf/financial-reports/2021/q4y2021/q4-fy21-transcript.pdf
Where did the $50M Q4 IP revenue come from? There was an IP sale to Huawei. Also there might be a potential UEM IP licensing deal with MobileIron. These two adds up to the $50M IP revenue in Q4 FY21.
My previous post, a $1.5B Present Value (PV), based on $250M annual revenue for seven years at a 4% discount rate, is just a basic financial calculation.
As comments indicated that there is also strategic value. There might be some FB lawsuit settlement wrapped up in the deal if FB is directly or indirectly the buyer. So the PV is just one component of the valuation and not the only one.
Do your own valuation of the company. If it is higher or much higher than the current price, do you know what to do? Sell your shares?
I'm an advocate of buying "non-expiring option" which is "share". Buy and hold. No need to look every minute because you know it will come in someday. You are not gambling with time which inherently is a short term strategy and a trading mentality which causes you to glue to the computer screen every minute of your life. Not to mention that big option writers seem to be able to expire options. The odd is against option buyer. Take less leverage and play safe, or gamble?