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BlackBerry Bears: Time To Move On

|Includes: AAPL, BlackBerry Limited (BB)

First BlackBerry was bleeding money and its future was uncertain.

Many writers and commenters on Seeking Alpha correctly called the company's demise.

The tides have turned, and the company just won't die.  Heck, it might live.

I've been following BlackBerry on this site for about two years now.  My memory is not perfect, but seems that this company just won't die.

For some time, BlackBerry was bleeding money and still trying to make its own phones.  Its future was quite uncertain, with a lot of possible downside.  There were bulls who swore the BlackBerry Passport and later BlackBerry Passport Silver Edition would do amazing things. They didn't.  Then the BlackBerry Priv. Crickets.  Then the rebadged phones from TCL.  Nothing.

Bulls enjoyed from 2012 being right about BlackBerry's decline. They won.  Specifically KIA Investment ResearchPaulo Santos, Kayode Omotosho, Bill Maurer, and even a commenter named 'Bestrader' were very vocal.  I want to be clear that these folks have relied greatly on BlackBerry for their reputation on SeekingAlpha & in the online investing community:

  • KIA Investment Research has 57 articles, of which 47 cover BlackBerry. (Since 2014 I believe)
  • Paulo Santos runs Idea Generator, which has greatly out-performed the S&P 500. Since April 2012, he has written 35 articles about BlackBerry. 
  • Kayode Omotosho has 102 articles, of which 19 cover BlackBerry.
  • Bill Maurer has written about BlackBerry since September 2011. A total of 115 articles.
  • 'Bestrader' has clearly moved on to other pursuits..

These are all incredibly smart people and they won their short-term bets.  Bill Maurer & Kayode Omotosho are strictly analysts and don't take positions - but their articles seemed right on the money.  But then something changed.

In 2017, BlackBerry won $940 million in an arbitration award from Qualcomm.

I believe this award was a turning point in the company's fortunes - even though it was essentially a payment of 'overpaid' royalties.  Sure BlackBerry's pivot from manufacturing into software is valuable and CEO John Chen has done some good work.  But I think the Qualcomm award was the canary in the coal mine for the bear camp.  Why?

It's hard to make good decisions when you're hungry.  It's much easier to make good decisions, negotiate shrewdly, and wait patiently when you have money in the bank. 

Some of the investors on this site haven't been poor or haven't been poor in a very long time, so they don't quite understand this.  I can't quantify it well.  The best I can do is to propose that it greatly increases the positive return possibilities for the company and somewhat improves the probability of success.

Let me try again. 

Apple is considered the richest company in the world.  It has ~17% of its market cap in net cash.  BlackBerry?  24%.  When you have that much cash, there is no rush to sign bad deals because you can wait for good deals.  There is also no concern from enterprise customers about your staying power because you can pay your bills for years.

Since the quarter when the Qualcomm award happened, BlackBerry's revenues have shrunk further. Recently we were told that QNX is in 120 million cars, but we see in the revenue numbers that it isn't worth much at this point.  We see the bottom line looking ugly.  Paulo Santos continues to criticize what he calls the "non-GAAP" sausage.  Time will tell whether this is weakness, or evidence that the company is turning down opportunities to make a few bucks here and there, while they pursue really large, meaningful paydays.  I'm betting on the latter - and God help me, I hope I'm not wrong.

Bears are upset. Very upset.

I recently saw a comment from StockScams regarding BlackBerry's recent lawsuits against Facebook, WhatsApp, SNAP et al:

"...I sincerely hope someone countersues and takes Chen and this operation to the cleaners. Would teach them a lesson in business they are sorely lacking."

This comment has emotion.  There is anger, and a desire to punish.  From what I was told, bulls were quite emotional in 2012 and it didn't work out well for them.  Of late, bears seem to have taken their place.  My perception of recent comments is that they accuse management of dishonesty or incompetence.  I interpret this as bears asking, "Why doesn't this cockroach die already!" Some bears have gone from questioning the company's viability to criticizing management for not buying back stock...but they don't realize that they can't believe buying back stock is prudent without recognizing that the company is stable, which cancels out their previous arguments to the contrary.  They don't see how they could still be behind the curve today.  Maybe there are better uses for money than buying back stock?

Bears seem to me to be grasping at a lot of questions in their efforts to find something that sticks. I don't think anything will stick. I don't think that John Chen is silly enough to sue today's tech darlings unless he can win some significant settlements in the hundreds of millions (if not billions).  I think that although BlackBerry is much smaller than Microsoft or Apple, it is large enough to have many great opportunities especially in emerging markets.

I wrote this blog post to give more color to those who meet me in the comments about where I stand, and how I interpret the debates that have happened here up till this date.  Hopefully my bet on BB works out.

[additional notes on this stock will be posted in the comments]

Disclosure: I am/we are long BB, AAPL.