was it right for blackberry

The scary ride

It is not clear whether not going private was a good decision for Blackberry, or was it not being able to sell the business to potential buyers. 

Last few years have been daunting for the smart phone maker whose technology was once considered disruptive. 

As revenues and profits started falling, market value has also taken a dive. The latest quarter ended August 2013 was extraordinary as the firm posted a gross loss. Does this mean it sold blackberry phones below cost, and did not have operating cash to cover its research & development, selling, general and admin expenses? Well, it looks like it.  

Dwindling market value

The consequence has been value destructive for the shareholders. 

From $47 b market cap in Sept-2009 it is worth, as appraised by markets, about $3.4 b now. As much as we hope that nobody bought any stock in the last four years we can't run away from reality. There must be a number of investors who believed the firm would grow its market share and stock price and put the money only to see it vanish. 

The good and the bad 

I am not sure what is in store for it now. Nevertheless, there are investors who have shown faith in its business model, or some of its assets.

The good news so far has been is that it has not been burning cash, yet. Depreciation and change in non-cash working capital have been positive cash flows for the firm compensating for the negative earnings. In fact, Blackberry would have increased its cash over the last year if it had postponed its capex. It has over $2 b of cash and no debt now which can help counter the storm for sometime, although, withering some ego. It also has software and patents apart from devices and network assets; these must be worth something.

However, there is plenty of bad news. Revenues and profits have been falling; market share is probably at its lowest point now; cash may not last for too long. Yet, the most important negative has been failing business model. There appears to be lack of a clear strategy going forward at least as available in the public domain so far. Moreover, capex cannot be postponed for long if Blackberry wants to continue doing what it does. In fact, it spent about $7.5 b in capex in the last four years; and we know what happened in those years. Reinvestment has to show growth and value, otherwise, it is meaningless and wasteful.

The uncertain bet

I am sure those who want to invest significantly in the firm have got a plan in place, and more importantly have faith in place. That $1 b investment in the form of debt securities with an option to convert into equity at $10 per share shows that faith. 

Whether it will fructify is something we have to wait and see. These are the challenging times for technology firms especially those into making smart phones and tablets. 

The option to sell the business in parts, a form of liquidation of assets, is apparently not on the cards. There is no full sale or part sale, there isn't going private, there isn't a strategy going forward. So what is it for the current and potential investors now?

It is tough to tell. But, here is what I reckon. Today, the market is willing to give just $1 b for its operating assets excluding cash. Is it too little or too high? Investment in Blackberry now is like a blind date, like you wouldn't know whether it is going to be a fairy or a witch. It is a bet which might pay off or may not. Blackberry's patents, like options, could pay off for the investors, or they may not. All this, however, is full of uncertainty. 

Uncertainty is what Blackberry is seeking today with its intention not to sell. Just for math, the stock price has to jump over 50% for the lenders to be even with the strike price for conversion. To make money it has to jump several fold though.

They must know better.....They must know something I don't. Wishful or nonsense?