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Why BlackBerry Ltd. Shares Soared Today

There are big cheers in the BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) camp today, and some tears of joy too.

BlackBerry has been awarded a hefty US$815 million in a binding legal arbitration award in a wrangle on royalty over-payments made to Qualcomm Incorporated (NASDAQ:QCOM).

This is a lot of money, especially considering that its almost 18.4% of BlackBerry’s $5.4 billion market capitalization prior to the news, if converted at current exchange rates.

Making the news even better is the mention that this is an interim award. There will be a final award, including interest and reasonable attorney fees, after a hearing on May 30, 2017. Attorneys are damn expensive, especially in high-value cases like these.

It’s therefore not surprising that the final award could reach the US$1 billion mark.

This one-time event is a great boost to BlackBerry’s cash coffers, which stood at about $1.7 billion at the company’s latest quarterly report. This surprising news element has strongly reinforced the bullish momentum in the company’s stock.

Is the payment guaranteed?

Yes.

In this case, both parties agreed to go the binding arbitration route to settle the matter. The arbitration exercise’s results are likely final. Qualcomm will not be able to contest the ruling, even if it may feel unfairly treated in the case. This is not a normal litigation where there could be appeals and counter appeals.

The decision is likely not reversible and will likely not be reviewed in any court of law.

Strong upside momentum

The news makes a strong case for a further upside potential for BlackBerry shares — a momentum that has already been triggered by the positives in the recent quarterly earnings report from the company.

The market is still sifting the news, seeking a new fair valuation for the company’s stock. Whatever the new stock price will be, it definitely won’t come down to $10 as fast as it got to $12 today.

BlackBerry has been awarded a much-needed cash flow boost and will see its net cash position almost double. The company’s CEO John Chen now has more cash resources to steer the ship into growth after a long turnaround.

What will Chen do with all this cash?

It is still early days to tell what BlackBerry will do with the cash, but the company is just coming out of a long-fought turnaround from being hardware-focused to a software-oriented firm; it has recently stopped the massive cash bleeding of the past four years. So, there a number of things John Chen could do with this windfall.

BlackBerry could deepen its involvement in autonomous driving vehicles. That could be a potentially rewarding investment for BlackBerry going forward as the rush by almost all automakers to bring to the market a driverless car is a clear indication of the rapid revolution in the auto industry.

Getting a bigger piece of the new autonomous driving car market is a huge dream for BlackBerry — one that is currently not yet very solid as BlackBerry’s offering with QNX software is argued by many analysts to be lacking in the most critical Artificial Intelligence, mapping, and environmental-sensing aspects that other competitors in the space are already capable of.

Will BlackBerry make an acquisition?

Most likely.

The company needs to cement its positions in software and in the connected car market. A small acquisition could make a lot of sense.

Investor takeaway

Cash is real, liquid, and tangible. BlackBerry shares deserve the upsurge witnessed today.

However, the company is not yet clearly out of the woods. The turnaround is over and growth is being engineered, but BlackBerry is yet to show a compelling, strong competitive moat in the software industry. A long-term investment in the company’s shares still remains more on the speculative side.

Expect some continued volatility in BlackBerry shares for the time being. The upside potential is becoming much more visible though.

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