BlackBerry Is A Phenomenal Failure - Time To Buy

| About: BlackBerry Ltd. (BBRY)

I was an early adopter of BlackBerry (NASDAQ:BBRY) because it was cool to get emails on your phone - ten years ago. A year later, I wondered why the graphics were so bad, and a few months later I moved on.

Meanwhile, RIM signed up lots and lots of enterprise customers due to their easy email integration and security. And since it was "enterprise," the prices were higher and features lagged. Great for profits, not so great for sustainability.

Now that the Q10 has proven to be a failure and the company is losing a billion a quarter, the tea leaves for company operations have been read and it's time to liquidate. To jumpstart that process, the largest shareholder has made a $9/share buyout offer.

Compared to $16 a share, this seems low. But when you discount the pieces, it's about right: $2B cash by the time employees are let go ($400M for 4500 and the company has over 10,000 employees), $1B for real estate after discounting, and $1B for patents (bear in mind Google offered $900M for the Nortel patents BlackBerry owns a portion of). The business itself has been losing money, so discount that to zero and at $4B you're at $8/share.

So, why buy?

First... there's little downside, especially at today's $7.97 share price. Yes, the real estate market in Waterloo could suffer if every building was dumped at the same time, and there are shareholder lawsuits that could consume some cash (defending them, not actually paying out any losses as no reasonable person could conclude that anyone thought the Q10 was going to be a sure thing) and contingent liabilities... but I've factored a couple hundred million in already for this.

Second... there's already an offer at $9 on the table from Fairfax Financial Holdings, BlackBerry's largest shareholder who has a record of closing deals and will likely liquidate sooner rather than later. Is it possible they can't get others to come in? Sure, but given the potential upside here, this appears to be ripe for equity partners to come in with Fairfax underwriting some risk.

And third... there is quite a bit of upside. The patents (3000 issued and 2000 pending in an increasingly frightful security environment) might be worth $6/share according to some estimates. The real estate and other assets might fetch another couple bucks a share, especially if put to use by an acquirer. And there are potential acquirers who would like first crack at BlackBerry's 70M customers. At a bargain basement price of $100 acquisition cost per customer (Sprint PCS is over $300, TD Waterhouse over $150), that's $7B- or $14 a share just for customers. And if closer to industry average, could be $14B, although you'd need to discount for overlap.

Google (NASDAQ:GOOG) is collegial, large, well-heeled, and headed towards being a device through network solution. Ditto for Microsoft (NASDAQ:MSFT), Samsung (OTC:SSNLF), and Apple (NASDAQ:AAPL). And don't forget that Amazon (NASDAQ:AMZN), who is also headed in the same direction, would gain something else from BlackBerry - instant footprint. While the Marketplace Fairness Act languishes over concerns that tax administration will be a nightmare for small businesses who sell online, this can be addressed via technology and bill tweaks, and once Amazon's tax nexus issues are resolved (I'd guess by end of next year either through legislation or Supreme Court), all those enterprise sales and support locations could come in mighty handy.

So discounting $7B to $4B assuming there's overlap already, we're still looking at a potential of $17B, or about $34/share for BlackBerry's pieces when you add up the cash ($2B), patents ($6B), real estate and data centers ($2B), licenses, contracts, and discounted customers ($7B).

And when I see a stock with limited downside, very likely upside, and management committed to getting out of the way so they don't snatch defeat from victory, I have to believe the final price will end up between the $8/share LMV and $34/share FMV - sooner rather than later.

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.