BlackBerry (NASDAQ:BBRY) is having trouble coping with the technology that the company pioneered itself a decade ago. The smartphones market is no longer BlackBerry's own playground and the company is facing some serious issues. Many had opinions that launching X10 would be a turnaround point for BlackBerry and would allow it to get back in the smartphone game. However, it took the company further deep in the ground. As a result, the stock is down more than 50% over the past year. However, at current price levels, I believe the stock is undervalued and the market is pricing the stock even lower than its liquidation value. Let's take a look at the company from the going concern as well as liquidation perspective.
Can QNX be the Main Growth Driver for the Company?
QNX is software owned by BlackBerry which is proving to be a valuable asset. This software powers not only BB10 and the Playbook 4G tablet PC, but many other gadgets like in-dash GPS systems, video, audio and wireless connections. The IVI (In-vehicle infotainment) market has a lot of potential. A recent report by ABI Research says that the shipments of connected automotive infotainment systems will grow from 7.8 million at the end of 2012 to more than 46.8 million in 2018, with connected navigation, multimedia streaming, social media, and in-car Wi-Fi hotspots becoming key features.
QNX alone brought the company $63 million in the second quarter of 2013. As of now, 60% of the infotainment units are powered by QNX which means according to the aforementioned research, BlackBerry can be the biggest player in this rapidly growing segment if the company is able to maintain its market share. The infotainment units made by BlackBerry are absolutely amazing as of now and companies such as Mercedes and Bentley have already shook hands with BlackBerry for using their QNX powered units in their upcoming cars. The best thing about QNX is that it does not bind the company to one thing. They are powering so many things with the same software. The BlackBerry research team is working on using QNX for powering the home automation - this would give BlackBerry a cushion to fall back. As the handsets business is not doing particularly well, it might be a wise move to focus solely on the software segment.
The company has a brilliant research team and an advantage over competitors when it comes to software. BlackBerry can find more uses for QNX and generate more avenues to increase revenues. However, the expected rapid growth in the segment has not gone unnoticed and Apple (NASDAQ:AAPL) also looking to find growth areas to increase revenue is ready to jump in the infotainment segment by 2018. Apple is looking to launch iOS in the Car user interface which links Apple's iOS 7 mobile operating system with vehicle infotainment systems to provide an optimized interface for messaging, navigation and music via a smartphone.
Valuation is too Cheap to Ignore
Even though there is potential in the software segment, the market is wary of company putting all its eggs in one basket. The investors are still skeptical about the future of the company. As a result, the current price of the stock does not show the true value, in my opinion. The company has good prospects but let's assume worst and the company is liquidated. Taking out the liabilities, BlackBerry has a net asset value of $4.919 (we have also deducted the intangible assets, which means the book value is based on the physical assets only - it can also be called tangible book value. The value including tangible assets goes over $8 billion as there are about $3.5 billion in intangible assets on the books of the company). Calculating the liquidation value based on 525 million outstanding shares, the company liquidates at $9.37 per share. This is excluding BlackBerry's patents worth $1 billion. As of now, the stock is trading at $5.88. Therefore, those who have bought this at anything less than $9.37 have nothing to lose here. Ironically, a rumor of BlackBerry liquidating could shoot the stock price up.
It is understandable why the market is putting so much pressure on the stock as the company is facing stern competition from other smartphone manufacturers, and it may fail in this segment. However, in my opinion, BlackBerry will give a healthy return to investors as I believe the software segment will continue to grow. On the other hand, even if the business is liquidated, the net assets of the company yield a value much higher than the current stock price. I do not think the investors who have bought the stock at such low price levels stand to lose anything.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.