Today I had a read through a report from Gus Papageorgiou from Scotiabank. On the back of the announcement of a special committee to explore strategic alternatives, he raised his target price on the stock. His new target is $14.20, up from $12.50 previously.
In his report, he comments on the higher probability of a sale of the company or a strategic partnership versus a going private transaction. Hislogic is that if the goal is to accelerate BlackBerry 10 to market, as the board of directors has stated, then a going private transaction probably wouldn’t be the best way to accomplish “scaling the assets”, as Papageorgiou puts it.
He sees the most valuable assets of BlackBerry as being the NOC (because it’s connected directly to over 600 carrier networks), the BES server installed base (over 200,000 of them) and QNX (which powers 60% of shipped automobiles today, and is the heart of BlackBerry 10). He makes what I think is a good argument for the potential to sell to, or partner with, companies who have interests in machine to machine (M2M) computing such as Ericsson, IBM, Cisco, or Qualcomm, each of whom he points out are looking to capitalize on the M2M trend. BlackBerry’s NOC and QNX assets certainly could be useful here.
As one example of how BlackBerry could monetize QNX and the NOC, he paints a scenario where the company powers the delivery of software update to cars. With an estimated 35 million cars having embedded wireless in them by 2018, charging $15 to deliver a software update could bring in $525 million per upgrade. As he points out, the network would not be limited to the automotive market. For example, he sees the opportunity of maintaining iOS and Android devices in the enterprise as an additional $1.6 billion revenue possibility.
Many analysts, including Papageorgiou, now seem to support the idea that hardware is of secondary importance to BlackBerry. I’m starting to agree with this, with the added point that some close partner still needs to make the hardware, and there has to be a way for such a partner to make money from it. If BlackBerry can’t profit from hardware why will a buyer of this business?
As for valuation, Papageorgiou values BlackBerry’s cash and patents at $10.16 per share. He pegs the enterprise business as being worth another $3.21, giving him the $14.20 target price.
Despite the stock rising more than 10% today, everyone realizes this is due to the increased probability of a take out. It has nothing to do with short term results. We won’t see the next set of numbers until September 27th, at which time we should also have some early evidence on the potential success of cross-platform BBM.