By Ivan Y.
Like other investors of BlackBerry (NASDAQ:BBRY), I was not pleased with the disappointing earnings report and the lack of openness and transparency in last quarter's conference call. But it is what it is, and investors in BBRY have to accept the reality of the situation and move forward. So this past week, I was listening to Jim Cramer on CNBC talking about Zynga (NASDAQ:ZNGA). Basically, what he said is that when a company like ZNGA has cash, it has the opportunity to make a lot of things happen. So immediately I wondered why he didn't say the same thing about BlackBerry. Like ZNGA, BlackBerry is a cash-rich company, has an uncertain future, and has a market capitalization that is not that much higher than its cash pile.
BBRY has grown its cash pile to $3.1 billion in cash and investments. The CEO has done a good job of preserving the company's cash. If you read the transcript of the earnings call, he emphasized the company's financial strength at least a couple of times. I guess there wasn't much else that was positive that he could talk about. So we know that the company is good at hoarding cash and saving it for a rainy day, but maybe it's time for a different strategy. Maybe it's time to spend/invest that cash instead of hoarding it. When there's cash, there's opportunity. I can think of three ways they could spend some of that cash: buying back shares, making an acquisition, and increasing spending on marketing.
With $3.1 billion in cash and short and long-term investments, why can't the board of directors authorize a share buyback? Board member Prem Watsa loaded of on shares at $7. Today's price of $9.xx really isn't that much higher. With today's stock price, it would only take $500 million to buy back 10% of the outstanding shares. It would show some confidence in the company, its brand, and its technology. There's no immediate need for that money anyways. Going further, the company could buy up all the shares and make itself private. If over $24 billion can be raised to take Dell (NASDAQ:DELL) private, then it is reasonable to think that perhaps one-quarter or one-third of that amount can be raised to take BBRY private. What would be the motive to take it private? It would allow the company to operate without being scrutinized by certain members of the media and by short-sellers. Thus, its brand would not be tarnished and consumers and IT executives would not think that BlackBerry was going out of business.
Make an Acquisition
There's been plenty of speculation about BBRY being acquired either in full or in part. IBM (NYSE:IBM) inquired last year about purchasing a piece of BlackBerry. And earlier this year, the CFO at Lenovo said that they were considering BlackBerry as a possible acquisition. But, why do we never hear about BlackBerry making an acquisition to grow its revenue and enhance its portfolio of products and services? Instead of being the hunted, the company can be the hunter. What kind of company can BBRY acquire? I have no specific suggestions, but here are three general categories. First, a component supplier. This would be a boring acquisition, but it would help BBRY to reduce its production cost, as well as transform itself into a mini-Samsung by supplying components to competitors. Second, a social media company. With BB Messenger expected to debut on iOS and Android this month, the company is taking its first step into the social media world. So a company with a product that could be integrated with BB Messenger would make sense. Third, an enterprise software or service company. Something that can be integrated with BES 10 would make the most sense. So these are just three ideas of possible acquisitions. Of course, I wouldn't want BBRY to overpay for any acquisition, but at this point they need to at least consider the possibility of making one.
Spend More Money on Marketing
I could be wrong about this, but it doesn't seem like the company is either spending enough to market BB10 or using the cash allocated to marketing very wisely. Last quarter, they spent $673 million on "selling, marketing, and administration" expenses. They don't break down how much of that was for marketing. But in the same quarter last year, they spent $547 million on selling, marketing, and admin expenses. So did they increase spending by only $126 million to market BB10? That doesn't sound like much of an increase to me.
Of the three potential uses of the cash, initiating a share buyback program would have the most immediate impact on the stock. Short-sellers of the stock would have to think twice about whether to keep their short positions or take their profits. I have no idea how much Thorsten Heins even cares about the stock price, but if he is concerned enough then buying back shares would be the best use of BlackBerry's cash (at least for the shareholders). It's time for management to make things happen. If they want to see a higher share price, then that can be bought. If the company can't grow organically, then growth can be bought. If they're not selling enough BB10 devices, then sales growth can be bought.
Disclosure: I am long BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.