The One Number That Matters to BlackBerry from the Microsoft/Nokia Deal

The reaction that BlackBerry’s stock has had to the MSFT/NOK deal has this Fool scratching his head.

Iain Butler

Chief Investment Advisor, Motley Fool Canada Fool since November 2012 Iain Butler, CFA, is Lead Advisor on Discovery Canada 2017. He is also the Chief Investment Advisor for Motley Fool Canada and is the lead advisor on its flagship Stock Advisor Canada product. Before joining the Fool, Iain was a “buy-side” analyst and through this experience is well-versed in the idiosyncratic ways of the Canadian market. His investing interests are centred on scouring the market for interesting businesses that trade at reasonable prices and offer an appealing risk/reward relationship. Since joining the Fool in 2012, Iain dedicates each day to spreading Foolishness throughout this great country!

Published September 3, 2013 11:07 am EDT

0.35.

This is the price/revenue figure that Bloomberg reported Microsoft (NASDAQ:MSFT) is paying to buyout Nokia’s (NYSE:NOK) handset unit and license its patent portfolio.

Handset unit? Patent portfolio? Both of these items sound very familiar to those of us following the BlackBerry (TSX:BB, NASDAQ:BBRY) story.

Not only does Microsoft buying Nokia potentially take a buyer off the table as BlackBerry continues to shop itself. It also potentially draws a line in the sand as to what price a buyer might be willing to pay.

For those of you hanging on to BlackBerry shares hoping for it to pop if/when a buyer is found, this number is not a favourable one.

With total revenues over the past 12 months of $11.3 billion, and a current market capitalization of $5.7 billion, BlackBerry currently trades at a price/revenue multiple of 0.50. BlackBerry shares would have to be trading right around $7.50 to carry a multiple of 0.35. That’s about 30% lower than where they currently sit.

The Foolish Bottom Line

Though BlackBerry’s shares are seemingly up on the day because of this MSFT/NOK news, it’s not entirely clear why this is so. One less buyer and a valuation precedent that is lower than where the company currently trades doesn’t seem like positive news to this Fool.

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Fool contributor Iain Butler doesn’t own shares of any companies mentioned. The Motley Fool owns shares of Microsoft.