August 10, 2022

Vision Cim

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Antique Lawsuits, Defunct Phones: Pray for BlackBerry?

Cyber security software maker BlackBerry (NYSE: BB) wants to make it absolutely clear that it is no longer a phone maker. Once, it was the phone of choice for a president; Barack Obama specifically.

However, it wasn’t enough to keep BlackBerry in the game. In fact, new developments make it clear BlackBerry is out of that game for good. I’m somewhat bearish on BlackBerry these days.

Its shift to cyber security is a good shift. Yet, the company really doesn’t have the kind of name recognition it would need to be a big deal therein.

Looking at BlackBerry’s year in share prices is a study in what might have been. One massive spike in January sent share prices from around $7 to just over $25 per share. That spike took roughly three weeks.

It took only about a week, meanwhile, for over half that to be lost. More moderate losses came and went, and by late March, the company had settled into a share price around $9.

Subsequently, late May brought a less-explosive spike that sent the company past the $15 mark. This mostly held until early June, when a downward slide sent the company back down around the $10 mark. The company then held in the $9 to $10 range for the next several months. That’s where it remains to this very day.

The latest news makes the company’s split from the phone field about as clear as can be. Further, it even offers potential reasons for such a split.

First, January 4 is the last day that BlackBerry phones will actually work. The company has discontinued support for every device running BlackBerry 10 or earlier.

Further, BlackBerry may face a class action lawsuit around the now-defunct phones. Its bid to drop a now eight-year-old lawsuit around the potential profitability of the BlackBerry 10 line failed in court.

Wall Street’s Take

Turning to Wall Street, BlackBerry has a Moderate Sell consensus rating. That’s based on one Hold and three Sells assigned in the past three months. The average BlackBerry price target of $7.74 implies 17.1% downside potential.

Analyst price targets range from a low of $7.45 per share to a high of $8.50 per share.

BlackBerry May Be a Poison Pill

Give BlackBerry due credit here. It’s made a likely very difficult pivot away from the item that pretty much made its company what it was. It’s gone into what was for it likely a tertiary venture at best.

It’s actually done reasonably well with cyber security tools. A couple weeks ago, the company rolled out a significant update to its BlackBerry Guard system.

A partnership with Exabeam opened up a range of new options. Exabeam brought its security information and event management (SIEM) tools, as well as its extended detection and response (XDR) tools to the table.

Additionally, cyber security is a growth field in general. The pandemic underscored the vital nature of cyber security in work-from-home applications, among others.

As robust a security option as this may be, it suffers from one critical problem: name recognition. One of the biggest things about cyber security is that most prefer to deal with someone they’ve heard of.

Name recognition contributes to reliability, and reliability is key in cyber security applications. This in a nutshell is BlackBerry’s major problem as a cyber security provider. It’s widely known for its phones. Its cyber security offerings are much less familiar ground for buyers.

Throw in the fact that BlackBerry’s dividend history is nonexistent and things only get worse.

It’s impossible to use BlackBerry as an income stock. Furthermore, its chances of becoming a major growth stock are virtually nil. So, functionally, that doesn’t leave investors with many viable use cases.

Concluding Views

The problem for BlackBerry is really two-fold. One, its now-defunct phone business may be coming back to bite it thanks to the lawsuit. Two, its currently active cyber security business operates under the same brand name as a now-defunct phone maker. These are fundamental problems for BlackBerry.

BlackBerry offers no dividend. Its chances of success going forward seem minimal at best. Additionally, there’s the albatross of a lawsuit currently around its neck.

It’s also currently trading above even its highest price targets. In sum, it looks like BlackBerry is laboring under seriously misplaced optimism.

Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.

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