BlackBerry: A Troubling Pattern

Jul. 12, 2019 11:52 AM ETBlackBerry Limited (BB), BB:CA97 Comments
Bill Maurer profile picture
Bill Maurer
33.32K Followers

Summary

  • 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 (NYSE: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?

This article was written by

Bill Maurer profile picture
33.32K Followers
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

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.

Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

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