BlackBerry: Raising Goldman's $19 To $20.82 What is the true base value in BlackBerry (BBRY) today? Numerous articles on BBRY and its new BB10 platform may be misleading traders into thinking there is a do or die situation happening each and every day. That day has come and gone for now. Goldman Sachs has a buy rating on BBRY with a target of $19. Peter Misek at Jefferies reiterated his Buy rating with a target of $19.50 yesterday. S&P, according to our old friend Eric Savitz, has a sell rating on BBRY with a $12 target.
Look, BBRY WAS a great short candidate long ago and when it went to single digits, the shorts should have covered. Rumor mongering about the slow rollout and predicting what total sales will be at this early stage is guesswork. But we know there is a good buzz about the Z10. The remaining stubborn bears are waiting for a BBRY apocalypse when they really should be planning their escape. We will explain why.
There is more to BlackBerry than the new Z10 and coming Q10 smartphones when valuing the company. In fact, there is much more value than investors are currently seeing. First, the BBRY ecosystem everyone has been talking about is the app developers. It's important, alive and well. But there is a more important ecosystem that is embedded in BBRY that should be mined as it exists. It's the customer base of 79 million users. They use the device each day. Facebook (FB) has a user base of 1.05 billion (10-Q) and its fully diluted (2.62 billion shares) market cap of $74.85 billion or $71.28 per user. Taking the value per customer approach for BBRY would yield $5.631 billion just for the customer base. This user base is something BBRY management must see as a secret weapon.
Using this as a fundamental value, we then start to add information from the 12/1/12 balance sheet. If we add just the net cash from current assets of $2.7 billion to the $5.631 billion above, we get a $8.31 billion sub-total value which would translate to a $15.95 per share using a base of 524 million BBRY shares outstanding. We then have the patents valued by the company at $3.1 billion in intangible assets category. Then there is the property, plant and equipment (PPE) at $2.493 billion and long-term investments of $207 million. Total other current assets other than cash and cash equivalents equal $4.095 billion and all total liabilities equal $3.297 billion.
Netting these two from each other leaves us with $798 million excess assets over liabilities. Adding the $3.291 billion to the $2.493 billion and $207 million above gives us a total $6.391 billion of additional potential value at BBRY found on its balance sheet. If we conservatively took a 60% discount to this combined total value of patents, PPE and other net assets of $6.391 billion, we get $2.5564 billion discounted net potential value which translates to an additional $4.87 per share in value to the share price for the final sum of $20.82. We think this is a floor value for BBRY shares.
Future Upside
The new feature BBRY released at the January launch is bigger than we originally thought. This feature is put on top of another undervalued asset that BBRY investors are not seeing. The BBM network. We have written before of this asset in relation to why it would be valuable to Facebook: