I'm a value investor myself and was seriously considering buying into this stock if it dipped any further. The thesis for investment is pretty darn clear at this point: Blackberry is trading at levels significantly below asset value and below the amount you'd get from tearing down the company
The balance sheet numbers per share:
1) +$13.50 - Net current assets (i.e liquid assets)
2) +$2.50 - Real estate holding (less liquid)
3) +$6.50 - Book value of IP
4) -$7.00 - TOTAL Liabilities
Meaning if you shut down the company you could realize a value of around $16 per share. Even if you discount current assets & IP since they might be over-valued in the books you can realistically get to a $11-$14 range for the value of the stock.
Essentially this means that any smart owner could realize a significant profit at $9/share just tearing down the company smartly (i.e. not a fire sale). As such, I expect Fairfax:
1) Maintain the businesses that are profitable TODAY
2) Shut down the unprofitable parts of the business that are destroying earnings (and thus slowly eating into asset value and the investment thesis)
3) Shop out ownership / licensing of the IP given it's significant value
I don't think this means that Fairfax is trying to turn around the company and restore Blackberry to its earlier glory; that would be a bit irresponsible and reckless for a value investor. Don't expect Blackberry to be the same company it was before, although I expect parts of business to continue.
Interesting analysis. There is another analysis from Quartz: 0 for phone business, 1.2 billion for BBM and enterprise infrastructure, 2.8b cash, 1b for patent portfolio.
I'd like to caution that this analysis is incredibly flawed. Specifically it magically ignores the entire liabilities side of the balance sheet (when you buy a company you don't just inherit their cash balances but also their debts). This is the problem with most financial journalism; you shouldn't taking financial advice from someone who doesn't understand the income statement or balance sheet.
All I did was take the balance sheet and pull out intangible assets: https://www.google.com/finance?q=NASDAQ%3ABBRY&fstype=ii&ei=.... I did NOT consider the value of earnings from any of the business (i.e. income sheet) as the investment thesis I made was for shutting down the business, and I don't want to divine profitability from each of the business lines.
They really need to require finance coursework in college so this kind of fake financial journalism gets stamped out.
slykat: I'm looking at asset liquidation value too, but my conclusions are different from yours. According to the June 1, 2014 financial statements[1]:
* Cash, short-term and long-term liquid investments, receivables, and assets held for sale totaled $6.0 billion. (I wouldn't dare put a dollar value on inventories, because their value declines at an accelerating pace, like a waterfall, due to the rapid pace of technological change.)
* Property plant & equipment (consisting mostly of land and buildings) totals $2.2 billion. Let's give them full credit for this figure.
* Total liabilities are $3.7 billion.
So, assuming you can liquidate the whole business quickly, the liquidation value of all tangible assets appears to be somewhere around $6.0 + $2.2 - $3.7 = $4.5 billion. However, the company is hemorrhaging money by the day and suffering from anti-network effects that can make revenues drop like a waterfall (instead of declining in a gentle slope), so this estimate may be optimistic. In a year, the figure could very well be down to $3.5 billion.
That leaves the value of intellectual property, carried on the books at $3.5 billion. Of that amount, $0.8 billion is the price paid for Blackberry's share of the Nortel patents[2]; the reminder consists primarily of all the Blackberry software they've developed in-house (that is, their proprietary OS and applications, built on top of QNX), which is valuable to third parties only to the extent they want to build a business around it. My (conservative) guess: this is worth a LOT less than $3.5 billion -- maybe ~$1 billion -- but I don't know for sure.[3]
At a proposed purchase price of $4.7 billion, the margin of safety looks very slim to me.
[3] For reference, QNX -- the jewel in Blackberry's software portfolio -- has been sold twice over the past decade. Harman International bought it for $138 million in 1994, and then sold it to RIM for $200 million in 2010. These figures are rounding errors compared to $4.7 billion. Source: http://blog.vdcresearch.com/embedded_sw/2010/04/update-2-rim...
Glad to see someone actually looked into the balance sheet before discussing valuation! To be fair I didn't do a detailed analysis into their books - I just skimmed over their balance sheet.
Nevertheless here's where I think we disagree:
* Inventory will have some liquidation value. Let's discount inventory by 75% which is pretty conservative; you will still get $200M here
* IP - Main disagreement for me is here. Most analysts who have pegged the IP at $2 - $3 bn. Let's put it at $2bn, the lower end of the spectrum [1][2]
As we can see the main question is the value of the IP (and PPE to a lesser extent). I have absolutely no experience valuing patents, I'm not a patent lawyer, and definitely won't be evaluating their 9K+ patent applications. So unfortunately there's a pretty big unknown in the valuation.
Regardless we have a $4.7B - $6.7B range based on a very quick 15 minute analysis of their balance sheet with an upside of earnings of any profitable lines of business that can be operated independently (if they exist).
My guess is tha Prem Watsa, as former chairman of BBRY, has done a much more rigorous evaluation of their IP and found profitable business lines he wants to keep / spin-off to reach a comfortable margin of safety.
The value of IP isn't the only question. We also seem to disagree on how quickly value is evaporating! Blackberry sales are bound to decline faster and faster, like a waterfall -- similar to what happened to Nokia's smartphones.
After the introduction of iOS and Android in 2007-2008, Nokia's quarterly smartphone unit sales barely budged... at first... but then dropped by two-thirds between Q1 2010 and Q1 2012![1]
Liquidating a company of Blackberry's size would take at least two years. Any estimate of liquidation value should take into account the possibility of quarterly unit sales dropping by two-thirds in the near future.
The balance sheet numbers per share: 1) +$13.50 - Net current assets (i.e liquid assets) 2) +$2.50 - Real estate holding (less liquid) 3) +$6.50 - Book value of IP 4) -$7.00 - TOTAL Liabilities
Meaning if you shut down the company you could realize a value of around $16 per share. Even if you discount current assets & IP since they might be over-valued in the books you can realistically get to a $11-$14 range for the value of the stock.
Essentially this means that any smart owner could realize a significant profit at $9/share just tearing down the company smartly (i.e. not a fire sale). As such, I expect Fairfax: 1) Maintain the businesses that are profitable TODAY 2) Shut down the unprofitable parts of the business that are destroying earnings (and thus slowly eating into asset value and the investment thesis) 3) Shop out ownership / licensing of the IP given it's significant value
I don't think this means that Fairfax is trying to turn around the company and restore Blackberry to its earlier glory; that would be a bit irresponsible and reckless for a value investor. Don't expect Blackberry to be the same company it was before, although I expect parts of business to continue.