BlackBerry: A Troubling Pattern

About: BlackBerry Limited (BB)
by: Bill Maurer

Stock trades down to $7 and is down for year.

Not a good setup if market actually pulls back.

Management silence speaks volumes.

A couple of weeks ago I mentioned how it was time for management at BlackBerry (BB) to step up to the plate with shares falling after Q1 earnings. Institutional investors have been bailing on the stock for a couple of years now, and the stock has done nothing despite the market rallying to new highs almost daily. The stock is now down for the year, a troubling sign when you think about the next market downturn.

(Source: Yahoo! Finance)

Despite the company beating on both the top and bottom line, there wasn't a ton of other positive news in the report. It seemed again that some Licensing and IP deals were booked earlier than expected, and if you exclude Cylance, total revenues were actually down over the prior year period. Since that Q1 report, we've seen analyst estimates for both revenues and earnings (each on a non-GAAP basis) for the current fiscal year and next one decline. On a true GAAP basis, excluding the debt adjustment the company is likely to be in a loss situation for a number of quarters moving forward.

In my previous article, I argued for management announcing a share repurchase plan if it truly believed shares were undervalued. With next year's big debt maturity being convertible at $10 a share, buying back at these levels would let you offset that dilution and save some money in the process. Of course, this assumes you believe shares will be in the double digits by then, which I can't say is a given at this point. BlackBerry may have to just repay that debt or refinance it for a second time, but this time the company doesn't have as strong of a balance sheet.

CEO John Chen's large pay package is based on shares more than doubling from current levels, which itself would be a decent incentive to boost the share price. For those arguing that BlackBerry should sell itself, that acquisition price would seem to be declining over time. A theoretical 30% takeover premium at $7.10 a share gets you a lot less than the same premium at $10 or more. Chen needs to do a lot better than that though, as the market is saying his time at the helm has been quite disappointing.

Even if we exclude the buyback for now, what about some insider share repurchases? A look at NASDAQ data shows no recent insider purchases, and data from Canada shows the last time BlackBerry shares were bought on the TSE came way back in September 2017. Is there no executive or director at this company that could step up and buy shares? That doesn't send a positive signal to investors. Should shares continue lower, this would seem like a name that is perfect for an activist investor to try to step in and shake things up.

While the NASDAQ index is up 85% over the past five years, BlackBerry shares have lost roughly 30% of their value. Since John Chen took over as interim CEO in late November 2013, you would have done almost as well holding cash or short term interest bearing instruments. With the company not deciding to buy back stock and no insiders even purchasing shares, it's very troubling that markets are hitting new highs every day and this stock is down for the year. Where would shares end up if markets pulled back or even had a brief correction in the coming months?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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