Blackberry is a Hard Investment to Stomach
Blackberry has gone from recording $19B CAD revenue in 2011, to $1B CAD of revenue in 2020, with a current earnings/share of $0.02 CAD in its latest quarterly earnings report. However, Blackberry’s stock price rose $18 CAD on Feb 22 to $25 CAD on Feb 25, which in my mind, brought about the question of whether Blackberry is a company worth investing in. Now, abstract away the “screw you” surprise many short investors faced in the past few weeks and let’s focus on Blackberry as a company. If you have not read about Blackberry, you could qualify their story as a “fall from grace”. Today there are those that believe this is a Canadian gem lost in the rough with an underdog story. Others, a timesink with more value in the clouds than in the company. I couldn’t tell you . That being said, I think looking back history is a start to making a pretty good guess. Personally, I think history is worth more than a peak to identify patterns that may repeat themselves in the future, but taking what you have learned to make a decision that involves money is a tough journey; especially if you are indecisive like myself. So, although I would not invest in Blackberry myself, I thought it would be interesting to run through the why. Note, that much of what I have learned is thanks to Peter Lynch. His teachings are simple, straightforward, and memorable. His book “One up on Wallstreet” has my praise. How could you not like a guy who, when describing one of his colleagues, highlights “ …the secret of his (the colleague) success is that he never went to business school — imagine all the lessons he never had to unlearn”. Note that all the information I analyze can be found in Blackberry’s publicly available quarterly reports. Lets consider first “percent of sales”:
1 — Percent of Sales
This is the simple premise: if you identify a product in a suite of offerings from one company, how much does that product’s sales contribute to the total revenues of a company. If that product contributes 3% to that company, it may not be the right incentive for you to invest. However, if that product contributes to 20% of the revenues, that may inspire some of that good ol fashion gambling vibes. A good example of this, is Blackberry’s Cylance — adjusted this acquisition adds $208M CAD in revenue. When you compare this, to Blackberry’s total revenue of approximately $1B CAD, Cylance contributes approximately 21% to the bottom line. This is not bad foundation for investigating a potential investment if Cylance was the main reason you started to look at Blackberry.
2 — Cash Position
On November 30, 2020 fiscal end, Blackberry had $223M CAD in cash but also had $459M CAD in long term debt. If an unexpected event placed pressure on the company to pay off it’s long term debts, then Blackberry would not be in a position to do so easily. The more cash a company has on hand, the better position it will be to mitigate unforeseen financial events.
If you were to investigate further, you can reference the Q2 2020 financial report and the cash position in August 2020 was close to $800M CAD. What that was used for is unclear for me at this moment, but what we know now is that Blackberry has $459M CAD in long term debt that was not present earlier that year. The above still holds true; Currently, their cash position is weak. That being said, an overall look at their 10 year financial summary shows that Blackberry has been working to reduce their long term liabilities since 2017. Less debt, more money to spend on other things long run.
3 — Net Cash with every Share
How much money comes with each share, beyond the long term debt obligations of the company…dare I say it “free money”? No, that is not appropriate, but in terms of value per share based on future earnings, this is a good metric to understand the earning potential for the investor. In this case, you would simply divide cash and cash assets (with long term debt subtracted) by shares outstanding. In this case, this number would be (223–459)/ 562 = -0.42), meaning that there is no extra money that would come to shareholders because Blackberry cannot fulfill its debt obligations with its current cash and cash assets.
4 — Return on Initial Investment
Based on the Latest FY 2021 report (November 30, 2020 end), Blackberry’s earnings per share were $0.02 CAD. At that same time, the stock was priced at $7.65 CAD. If you were to calculate the p/e ratio of blackberry you would get 382.5 (7.65/0.02). Effectively, this would mean you would have to wait 382 years before recouping your initial investment. However, to be fair this is based on earnings for that day. If we look at earnings in the TTM, you would have a loss of $0.05 CAD/share, meaning you would not recoup your investment. If you take the past 3 years, the picture is rosier meaning the average return is $0.22 CAD/share. Even with this number, based on the stock price on November 30, 2020, it would take you 34 years to recoup your initial investment (See below). What is more important is thinking about the earning potential for the company moving forward. Is there something now that justifies the decrease in earnings, or increase in stock price that extends the time to recouping initial investment? Is the purchase of Cylance in 2019 a reason that stock price went up compared to Blackberry’s yet unrealized increase in earnings?
5 — Cash Flows
In 2020, Blackberry had a net loss of $789M CAD. Most of the cash for Blackberry did not come from operating activities, but from proceeds from maturities on short term investments. The company is operating at a loss with net income sitting at -$1M CAD. This does not mean the company is going to go bankrupt because they still have ~$250M CAD in cash sitting in the bank. What it does mean, is that Blackberry’s product/service does not bring in as much cash as it’s investing activities. Some may consider these investments part of what makes a company operate effectively, but still worth considering in the scheme of valuing operating activities.
At the time of writing this, Blackberry’s stock is sitting around $15 CAD, but only 2 weeks before was sitting at $32 CAD, almost double of where it is now. If you’re interested in investing in Blackberry, you don’t need to be a wallstreet investor to try and understand what makes a good company worth investing in. Take about 2 hours to dig into the financials to reflect on what makes a company valuable and you will be better for it. This post is not meant guide investment, and I am certainly not a financial advisor, but to provide a set of tools to incite pause, before investing time, mental energy, and money in a company.
