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Kenny Yang
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I'm a value investor and always on the lookout for new ideas. Unlike some investors, I don't limit myself to any sector. I found opportunities in various sectors including financials, energy, consumer staples, industrials, technology, and consumer discretionary. Although I'm not a top-down... More
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  • Quick Take On BBRY Q2/15

    Since I don't have a time to compose a full article, I'll share my quick opinion here on BBRY (NASDAQ:BBRY)'s earnings.

    Quick Summary:

    • The negative was the sales miss. Sales of $916MM was lower than analyst expected than $940MM
    • Non-GAAP loss of $0.02 was much better than expected
    • Cash actually went up $11 million during the quarter. Although excluding asset sales, it is $36MM
    • Operationally, device sale in of 2.1MM units and sell-through of 2.4MM units. ASP on devices only $200 vs. $250 last quarter. EZ Pass totaled 3.4 MM license with 25% from competitors. That implies in the quarter, there was an additional 2.2MM. BBM MAU up from 85MM to 91MM
    • Revenue Mix of 46% hardware, 46% services and 8% software.

    Take:

    • Stock up only 4% in pre-market in response. Good response to big earnings surprise but some may focus on the sales decline, which was cause by a 13.8% Q/Q decline service revenue
    • Hardware segment performed extremely well despite the lower ASP. My implied gross margin for hardware is actually +3% this quarter vs. the -5% in the prior quarter and almost -29% in Q4/2014.
    • Software revenue of $73MM was up 8% from the prior quarter of $68MM, which is a good sign of Chen's plan to boost software revenue.
    • Cash actually went up, which very positive for a company that is suppose to burn cash. Although this is due to better working capital management and some asset sales, cash increase is still positive. Normalized cash burn of $36MM is much lower than analysts' estimate of $100MM+.
    • More on sources of cash, purchases of intangible decrease another $20MM from $140MM to $120MM. Capex continued to decline from $26MM to $20MM.
    • I'm very glad that the purchase obligation (a issue that caused big write-downs) is controlled. Purchase obligation is only $1.6 billion vs. $1.8 billion in the prior quarter. Despite the Passport launch in the next quarter, the company was manage inventories and potential cash outflows carefully.
    • The sell-ins vs. sell-through on hardware is narrowing and showing that sell-ins should be at least 2MM units per quarter. With Passport and Classic in the next quarter, number could be 500K-1MM higher (I'm hoping for more!).

    I'll write a full article on the weekend with more insight after I review BBRY's MD&A EDGAR filing.

    Tags: BBRY, Earnings
    Sep 26 7:48 AM | Link | 1 Comment
  • BlackBerry's Announcement Causes Short Term Panic But It Will Weather The Storm

    BlackBerry (NASDAQ:BBRY) today announced it is abandoning its strategic review announced on August 12. Instead, it chose to raise $1 billion from Fairfax Financial and other institutional investors by issuing convertible debt with a conversion price of $10.

    Despite the disappointing announcement, it should be noted that the CEO is replaced and Prem Watsa gained control of the board with his appointment as lead director. For a person who did not want to add additional capital just a month earlier, he injected a further $250 million into the company today, which is on top of his $900 million equity investment. It is unlikely he would put in addition capital if he did not believe in a long term turnaround of the company. Even Steve Jobs took years to turn around Apple (NASDAQ:AAPL) when he re-joined as CEO in 1997.

    Valuation:

    In times of panic, intelligent investors should remain calm and take out BlackBerry's balance sheet to evaluate the company's financial position by looking at the net-net value. The net-net value, pioneered by Ben Graham, is calculated by subtracting total liabilities from current assets. This is a conservative valuation for any company as it assigns zero value to its long term assets such as PP&E and intangible assets. The net-net value is near $6 per share (using data from its Q2/14 balance sheet), ignoring the possible dilution effect from the $1 billion issue because there is no dilution when the shares are below the $10 conversion price. Therefore, it wasn't too surprising that a big buy order came in the pre-market at $6 to lift the shares to $6.50. Even though the share price could still decline towards the $5 (the cash per share on the balance sheet) in the short term, I see $6 as a good valuation floor for BlackBerry. An upside target is $10.50, which consists of $6 for net-net, $2.25 for patents (1/3 of net book value of $3.5 billion), and $2.20 (1/2 of PP&E balance on balance sheet). Long-term intrinsic value of the company can be higher than $10.50 if it can generate earnings again.

    Conclusion:

    Investors in BlackBerry should not panic. With the price near $6, downside risks is greatly diminished. A stock only gets less riskier as price declines, not more riskier as suggested by models like CAPM. With Thorsten Heins fired, and a new chairman appointed, BlackBerry can still manage a long term turnaround despite short speculations regarding its survival. Management should focus on a long term strategy and product development instead of trying to find a buyer. Investors need to take a longer term view of the company and not panic because of headlines from the financial media. I am not selling any shares.

    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.

    Additional disclosure: This article is for informational purposes only and does not constitute an offer to buy or sell any securities discussed in the article. The stock mentioned in this article does not represent financial advice. The target price presented in this article is based on current information and are subject to change without further notice. Investors are recommended to conduct further due diligence before committing capital to any investment.

    Tags: BBRY, long-ideas
    Nov 05 7:15 AM | Link | Comment!
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