Hat Tip to Nicholas Three fundamental reasons rationalizing Blackberry trade in the $25-$50 USD range today...
1) Comps:
There are many including Crowdstrike and Okta. These trade at close to 10X the valuation of BB. Let’s touch on Crowdstrike since it’s amongst the most recognized players. Their fiscal year ends soon and they are expected to show $860 million in sales (versus BB’s $950 million). They have been losing approximately $25 million per quarter. Their product is not better than Blackberry’s. SolarWinds did not touch Blackberry and its clients. How many can say that ? Blackberry has the highest certifications and some that no other player has. Blackberry’s product is faster and more cost effective than that of the top players. The only argument to make in Crowdstike’s favor is that its revenues have been growing in the healthy double digits but that is not from a multi billion dollar base, and the rate will taper off. More importantly, is there any doubt that Blackberry’s revenues are going to grow ? And substantially ? IVY alone will more than take care of that, and there is more to Blackberry than IVY. It does not matter if traction on that are a few quarters away. There is absolutely no question that Blackberry’s prospects are far more interesting with way more potential than anything its competitors have. Yet Crowdstrike trades at over 7.5X the valuation or a $53 billion market cap versus Blackberry’s $6.8 billion. Blackberry should not be trading at a fraction of Crowdstrike. Using the current Crowdstrike P/S multiple on Blackberry equates to a BB share price of over $82 USD.
2) Netflix:
This analogy underscores the value of a platform and an audience. It’s crude but makes the point. Netflix has a platform of 200 million users paying on average $150 USD annually. Netflix has a market cap of $250 billion. Blackberry’s QNX platform has 175 million users (growing at 25 million per year and some estimates suggest an installed base of 450 million by 2025). There are over 290 programs are in progress related to IVY (we will learn more on Feb. 23rd on the conference call). Is there really any doubt that IVY will provide value to automobiles and a stream of fees for Blackberry ? Remember Blackberry stated that the response from the auto manufacturers has been “overwhelming” and that these manufacturers are sitting on “a goldmine of data”. We can easily imagine an annual fee of $150 per annum like Netflix, but let’s assume a modest $100 USD. Using Netflix as a comp that suggests a $165 billion market value for IVY. Half is attributable to Blackberry since it is a joint venture with Amazon, therefore $82.5 billion of value for Blackberry. That is over 12x times BB’s current share price. Based on this Blackberry should be at over $144 USD.
3) YouTube:
This analogy is similar to that above. It may sound very rich but these are facts. 10 years ago YouTube had a user base of 50 million (less than 1/3rd of QNX). It also had NO revenues whatsoever. Although Google owns it now, Microsoft at that time paid $240 million for an approximate 1.6% stake. Many felt Microsoft was foolish to pay such a price (but in hindsight proved to be very shrewd and a bargain). That investment by Microsoft valued YouTube at $15 billion or almost 3 times where Blackberry trades today. The average YouTuber spends 25 minutes per day on YouTube. The average automobile driver spends 90 minutes per day in his or her car. If we do the math, Microsoft paid $300 per user. Using this metric, we get to a valuation of $525 billion for IVY, of which $265 billion is attributable to Blackberry. This equates to Blackberry shares being at $480 USD.
One can debate minutia but the above are not unreasonable analogies. All suggest the same thing. Blackberry is extremely undervalued and a $100 USD target is ultimately likely conservative.
A comment linked to one of the world’s best performing hedge funds in the late 1990s and first half 2000s:
“Volatility does not equal risk. Models [financial] should not drive analysis. Selection, Sizing, Liquidity and Exit are the keys to successful investing. These are the essence of Value Investing.”
Prem Watsa and John Chen get this.