CEO John Chen has been doing a good job turning around BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY). The main thing, at least from my perspective, is getting the company out of the mobile phone business. Each quarter, results said the same thing: software was making money, but hardware was losing it. And as its market share continued to dwindle, everyone could see the trend wasn’t going to be reversed. If it was obvious to me, it must have been glaringly obvious to Chen. And so he pulled the plug on hardware, choosing instead to license the BlackBerry name to other phone manufacturers. It…
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CEO John Chen has been doing a good job turning around BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY).
The main thing, at least from my perspective, is getting the company out of the mobile phone business. Each quarter, results said the same thing: software was making money, but hardware was losing it. And as its market share continued to dwindle, everyone could see the trend wasn’t going to be reversed.
If it was obvious to me, it must have been glaringly obvious to Chen. And so he pulled the plug on hardware, choosing instead to license the BlackBerry name to other phone manufacturers. It has already inked a deal with one company in Indonesia, and it will retain the option to market phones made by any of these partners to users in North America.
Now that BlackBerry has officially exited the phone business, I think it needs to work on putting its massive US$2.1 billion cash hoard to work. BlackBerry is not a behemoth any longer. Its market cap is just over $5 billion here in Canada. Investing that cash sensibly could really add to the bottom line.
Here are three ideas for BlackBerry’s cash.
Long-time BlackBerry shareholders have been suffering for years now. Shares are down 93.5% over the last decade and down 41.1% over the last five years. They’re even down over the last year, although that loss is only marginal.
In short, shareholders could use a reward. That could come in one of two forms–either through a share buyback or a special dividend.
Let’s start with a share buyback. BlackBerry has 527 million shares outstanding according to Google Finance. Shares currently trade hands on the NASDAQ for US$7.59 each. Thus, half of BlackBerry’s cash (or US$1.05 billion) would buy back more than 138 million shares. That’s more than a quarter of outstanding shares.
A special dividend is another idea. BlackBerry could pay investors a US$3-per-share dividend and still have about US$500 million in the bank. Since it’s obvious investors aren’t valuing BlackBerry’s cash hoard at face value, the likely reaction would be for shares to surge by US$3 per share before dropping back down to current levels.
Keep making software deals
In the past year and a half, BlackBerry has spent aggressively making acquisitions in the software space. It has acquired a total of four different companies since April 2015.
The big acquisition was spending US$425 million to acquire Good Technology back in August, 2015. It also acquired WatchDox in April 2015, AtHoc in July 2015, and Encription Ltd from the U.K. in February. Financial details for the latter three deals were not disclosed.
Investors like the software deals for a number of reasons. Software has great economics. Customers tend to be pretty sticky. And it nicely meshes with BlackBerry’s existing expertise.
But there’s a reason why the company isn’t being more aggressive in the space. Bidding is fierce for good assets. There’s plenty of cash in the sector. And even old-school industries are starting to invest in the sector.
In short, making meaningful software acquisitions is not going to be a piece of cake.
QNX, a BlackBerry subsidiary, recently announced it would be joining a pilot project that will bring self-driving cars to Ontario streets.
It’s obvious that self-driving cars are going to be a huge market. It’s inevitable. And we also know that other tech giants are investing heavily in the space. So what’s stopping BlackBerry from spending much of its cash on being one of the leaders in self-driving cars?
Such a move would have a number of benefits. It would give something for investors to rally behind. It would make the company attractive to a competitor looking to get into the space. And, most importantly, becoming a leader in self-driving cars has the potential to be a real game changer.
The bottom line
Now that BlackBerry is out of the phone business, it’s time for John Chen and his management team to look at ways to invest BlackBerry’s massive cash pile. No matter what they do, it’ll be an improvement, since investors are discounting the cash today.
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Fool contributor Nelson Smith owns shares of BlackBerry.