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BlackBerry Ltd. Is Finally Turning the Corner: Is the Company a Takeover Target?

Investors have watched over the past decade as the once-great tech giant BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) fell from grace and fell hard. Since 2007 BlackBerry shares have lost an incredible 90% of their value.

Since that time, BlackBerry hired turnaround expert John Chen as its new CEO.

Chen is famous for reversing the fortunes of his former company Sybase from four straight years of losses and a value of $360 million to a company that, at the time of his departure, was the largest enterprise-software provider in wireless technology with a value reportedly worth $5.8 billion.

Sound familiar?

Chen has remained committed to his plan at BlackBerry to move the company out of its hardware business and into software that can be used for mobile applications. The company has now completely migrated out of its hardware business and is focused on its remaining two business units, Software and Services and Mobility Solutions.

Today, the company sees itself playing a critical role in “securing the connected world.” This means connecting an increasingly mobile workforce with their devices and the organizations they work for.

Chen obviously sees an opportunity in the rapidly expanding market for its Software and Services business unit. BlackBerry’s own internal projections predict this market will expand from $4.9 billion today to $17.6 billion by 2019.

Within this focus is the much-talked-about “Internet of Things.”

It is estimated that on average, 10 million new devices are added to existing networks each day. Estimates are that there are 3.9 billion smartphones and 6.4 billion devices already on networks, but by 2020 these figures will be closer to 6.1 billion phones and 20.8 billion devices.

All this creates an opportunity for BlackBerry to exploit its true strength: security and stability in an increasingly connected world.

A recent study conducted across 1,278 CEOs in 10 key markets revealed some startling statistics.

Among CEOs at companies with revenues of more than $500 million, 50% admitted they did not feel their organizations were properly prepared for a cyber-attack. Moreover, the annual cost of cyber-attacks was estimated to be $400 billion globally.

With more and more devices being added to the internet along with an increasing threat of cyber-attacks, BlackBerry is betting that enterprises are going to be asking for more protection.

BlackBerry appropriately calls this phenomenon “the enterprise of things.”

What’s next?

BlackBerry reported strong Q4 Fiscal 2017 results on March 31 this year, commenting that the enterprise business had one of its best ever billing quarters to date.

BlackBerry also posted its first net profit in over two years and issued forward guidance that the company expects to be profitable on a non-GAAP basis and generate positive free cash flow for the full year.

Yet all of this fails to mention that the company recently settled a lawsuit with chip-maker QUALCOMM, Inc., which will add $1 billion cash to BlackBerry’s already strong balance sheet.

Not to mention that BlackBerry’s QNX software is now firmly entrenched in over 60 million automobiles on the road today.

Should you buy?

Patient investors have been waiting a long time for this story to finally start playing itself out. But it does appear that BlackBerry has firmly turned the corner and brighter fortunes lay ahead.

Those speculating on a BlackBerry takeover may want to keep in mind that peer software application company Mobileye NV (NYSE:MBLY) was recently acquired by Intel Corporation (NASDAQ:INTC) for $15.3 billion, or approximately 100 times trailing 12-month EBITDA.

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Fool contributor Jason Phillips has no position in any stocks mentioned. 

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