BlackBerry Ltd

Written by Ophir Gottlieb, 6-11-2015

I'm going to take you on a journey that will start with the worst news you have likely ever read surrounding a one time mega cap company, and will end with a surprisingly positive result. And this analysis is entirely objective; based on facts.

At its peak in 2011, BlackBerry (then called Research in Motion) generated over $20 billion in annual sales. In the most recent trailing-twelve-months revenue has dropped to $3.3 billion and that annual number has declined eight consecutive quarters and fifteen out of the last sixteen quarters.



The company has generated annual losses for twelve consecutive quarters. Apple's iPhone (and Google's Android) have killed BBRY's phone business, but in many ways, that's old news. The stock has dropped from nearly $150 to about $10 and the focus now becomes on the future rather than the past.

The fundamentals behind the 1.5 star rating are summarized below.


But, CEO John Chen has sparked some hope for BBRY shareholders with re-entry into the US smartphone market with the BlackBerry Passport (exclusive to AT&T), as well as the BlackBerry Classic (available with AT&T and Verizon). The company is also moving from a focus outside of just hardware sales and into security and IP. In fact, BlackBerry has partnered with Google and Samsung in the security realm and already has plans to bring its security tools to iOS (AAPL) as well.

For now, the fundamentals look very poor, but for the first time in several years the future may have an outcome other than absolute and total technological obsolescence. Note that the revenue estimates for next quarter are higher than last quarter's realized revenue.

BBRY is down -24.5% over the last three months and down -19.3% over the last six months. The stock price is up +9.3% over the last year. The stock is down from an all-time high of nearly $150 several years ago.


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So we're going to have to start with the really (really) ugly. Revenue has totally collapsed. That's it. No more to say. The chart below truly does paint a thousand words.


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As a quick "catch-all" as to what happened to BBRY, we need look no further than a revenue comparison chart of the firm vs. Apple and Google. The mobile market is owned wholly by those two firms.


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OK, we have digested the awful news surrounding BBRY, but believe it or not, it doesn't take a fan boy to recognize that at there is evidence of, at the very least, an end to Armageddon.



BBRY reported a net loss of $5.8 billion (TTM) a year ago. The net loss in the most recent trailing-twelve-months is "just" $304 million. But, last quarter, BBRY reported a profit. Now granted, it was a profit of just $28 million, but brother, that's a lot better than a $5.8 billion loss. Let's turn to a chart of net income (TTM) in the blue bars and quarterly in the orange line.


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We see a similar phenomenon in free cash flow (FCF) as we did in net income. A year ago, the trailing-twelve-month number was negative $1.2 billion. In the most recent TTM, BBRY reported a net free cash flow of positive $314 million. Again, these aren’t crazy good numbers, but it ain't just fan boys that see a light at the end of the tunnel.

This next chart plots levered free cash flow (TTM) in the blue bars. Note the move to positive in the most recent reporting period."


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per dollar of revenue has actually increased. Given the total collapse of revenue, the firm has actually done a decent job of making sure these is some wood for the fire to burn.

In this final chart we look at R&D in the blue bars ($ millions) and R&D per dollar of revenue in the gold line."


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Summary
As of right now, BBRY looks awful. Revenue has been stolen away by AAPL and GOOGL to the tune of an 85% drop. The stock is down more than 90% from its peak. But if you just look at what's happening with the fundamentals objectively, at the very least you see a firm which has put off bankruptcy for the foreseeable future, and maybe, just maybe, has found a way to exist with profitability.

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