Mixed Messages for BlackBerry

One source says there’s interest. Another says there shouldn’t be.

| More on:
The Motley Fool

The Globe and Mail is reporting that Fairfax (TSX:FFH) has submitted a draft of its takeover agreement for BlackBerry (TSX:BB, NASDAQ:BBRY).  The paper even goes so far as to indicate that there may even be a competing bid swimming around out there.

In stark contrast to the Globe, after pouring through the company’s release earlier this week, U.S. research firm Bernstein is out with a piece that indicates only a small-f fool would be interested in this battered firm.

The following are some of the high level items from the Bernstein report that caught this Fool’s attention about the state of BlackBerry:

  • Bernstein estimates the firm lost 3M users this quarter and is set to lose 7M more next quarter.
  • In Bernstein’s eyes, BlackBerry has a previously misunderstood, yet highly significant exposure to multi-year licensing agreements.  This will result in significant cash outflows to IP owners in the coming quarters and means there is a sizeable liability that doesn’t currently appear on the company’s balance sheet.
  • Working capital was manipulated throughout the last quarter at an unsustainable rate, especially when it comes to receivables.
  • Enterprise adoption has been weak.  23,000 BB10 servers have been deployed, but these are only test cases and likely to result in a relatively small number that turn into actual users.

What these items boil down to, in Bernstein’s opinion, is that BlackBerry is set to burn through $1.9 billion of cash in the next 18 months.  That would effectively wipe out their current cash balance and leave the firm in a precarious financial situation.  This kind of scenario significantly diminishes the possibility that a potential acquirer could secure a bank loan of any magnitude to finance a transaction and therefore makes the possibility of a buyout by a financial player very slim, especially at $9/share.  Therefore, Bernstein sees a strategic buyout from an existing industry player as the only possible “upside risk” to this story.

The Foolish Bottom Line

Until recently, BlackBerry had managed to escape the dreaded financial risk.  Business was bad and getting worse, but the company’s finances have remained relatively buoyant.  This of course can only last so long, and even if a buyout does occur, potential acquirers appear to be stepping in front of a train on its way to nowhere-ville.

Looking for more expert advice?

The Motley Fool Canada’s senior investment analyst just unveiled his top two stock ideas for new money now. And YOU can be one of the first to read his buy reports — just click here for all the details.

Fool contributor Iain Butler does not own any shares in any of the companies mentioned.  The Motley Fool does not own shares in any companies mentioned.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

A worker gives a business presentation.
Stocks for Beginners

2 Reasons to Buy Onex Stock Like There’s No Tomorrow

Onex (TSX:ONEX) stock has been a strong performer over the years, both in terms of growth and dividends that investors…

Read more »

Canadian Dollars
Stocks for Beginners

The Best Stocks to Invest $5,000 in Right Now

Are you looking to put some cash into the stock market? Here are three picks to put on your watch…

Read more »

calculate and analyze stock
Dividend Stocks

Got $1,000? 3 Dividend Stocks to Buy and Hold Forever

Dividend stocks like Restaurant Brands International (TSX:QSR) can pay substantial amounts of passive income.

Read more »

financial freedom sign
Bank Stocks

This Ridiculously Cheap Warren Buffett Stock Could Help Make You Richer

American Express stock is part of Warren Buffett's equity portfolio, and the stock trades at a steep discount in 2024.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Monday, February 26

After rising for two weeks in a row, the main TSX index is now at its highest level in more…

Read more »

stock analysis

Buy the Dip: 2 Stocks to Buy Today and Hold for the Next 5 Years

These Canadian stocks are trading at discounted valuations, providing an opportunity for buying the dip.

Read more »

bulb idea thinking

Safety in Size? 2 of the Bluest Blue-Chip Stocks I’d Buy Now

TC Energy (TSX:TRP) and another cash cow have huge dividend yields for safe investors.

Read more »

A cannabis plant grows.
Cannabis Stocks

Can Aurora Cannabis Stock Recover in 2024?

Aurora Cannabis stock is down 99% from all-time highs but remains a high-risk bet, despite its cheap valuation.

Read more »