BlackBerry could acquire some more smaller companies going forward, stated Morgan Stanley analysts in a report on Wednesday. The analysts have reiterated their Underweight rating on the Canadian firm with a price target of $7. BlackBerry purchased WatchDox on Tuesday to upgrade its mobile content security.
Huge cash reserves
The report read that there could be even smaller acquisitions in the future as the company is moving forward with its plan of $600 million in software/messaging target through a combination of organic & inorganic activity. The Waterloo, Ontario-based company earned software revenues of around $250mm in FY 2015.
Abacab Fund Sees Mispricing In Options As Black-Scholes Has Become “Inadequate”
Abacab Asset Management's flagship investment fund, the Abacab Fund, had a "very strong" 2020, returning 25.9% net, that's according to a copy of the firm's year-end letter to investors, which ValueWalk has been able to review. Commenting on the investment environment last year, the fund manager noted that, due to the accelerated adoption of many Read More
“We would expect acquisition activity to continue, as the company has stated it is comfortable taking its cash balance down to $2.5bn from $3.2bn ($1.5bn net),” the analysts wrote.
In its fourth quarter earnings call, BlackBerry did mention that for the first time in FY 2016, their messaging/software revenue target of $600 million would be achieved through organic and inorganic means. In line with its objective, the Canadian smartphone maker purchased WatchDox, expecting to generate revenue of around $20 million in 2014.
Morgan Stanley further said the company largely kept the details of the WatchDox acquisition under wraps, but the negotiation price is not as much as $150 million as was speculated, but rather somewhere in the range of $70 million. The analysts noted that given the estimated revenues of the company, it suggests a “3-4x rev acquisition price, well south of current security software valuations (5-10x).”
Is BlackBerry making costly acquisitions?
Last year, BlackBerry acquired start-ups such as Movirtu and Secusmart, which the analysts feel was a disciplined approach from the Canadian firm “in their pursuit of assets.” However, the analysts added that the Canadian firm is in need of another $120 million in revenues, something that could be very expensive if “acquisitions of size are made.”
The Canadian smartphone maker surprised the analysts by posting earnings per share of 4 cents, compared to a loss of 8 cents per share in the previous year. After coming back onto the track of profitability, the company now is focused on revenue stabilization. BlackBerry CEO John Chen is looking to transform the company from a legacy model into an enterprise software model.
On Wednesday, BlackBerry shares closed down 1.1% at $9.92, and year to date, the stock is down by almost 10%.