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The New Blackberry (TSE:BB, NYSE:BBRY)

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[OP]
Member
Jan 10, 2016
313 posts
33 upvotes
Markham, ON
treva84 wrote:
Apr 2nd, 2016 10:45 am
- I haven't bothered to read the annual reports (I have no interest in a company like BB) but if it's "common sense investing" why i) can't other readers easily identify what you are seeing and why ii) do you need to go to the notes of the financial tables to see the positives. If it's so easy, shouldn't it be glaringly obvious?
I didn't see the positives in the notes, I see it in the cash flow statement. that is why you have to read the financial reports.
treva84 wrote:
Apr 2nd, 2016 10:45 am
- You are discrediting whatever opinions disagree with your own --> confirmation bias.
Actually, I am the odd ball here. Most people has bad opinions on Blackberry, I am the contrarian. So, people don't my opinion, not that I don't consider theirs. in fact, I came into reviewing blackberry with a negative mindset. But after I have done the review, I found some positive things.
treva84 wrote:
Apr 2nd, 2016 10:45 am
- You are exhibiting over-confidence, in that you feel you can do a better job than the professional analysts who do this on Bay / Wall Street (the fact of the matter is both of you will likely do a mediocre job forecasting the future but that's besides the point).
Well, if you tone into their conference calls (and every other companies' conference calls), you will notice that analysts' questions are mostly for the purpose of producing numbers for their next estimate of revenue and net income. Analysts don't know and don't care where the company is going, they just need the numbers for their next estimate (including numbers to base their forecasts on).
treva84 wrote:
Apr 2nd, 2016 10:45 am
- You call yourself a value investor but you are anchoring (another bias) at $10 / share, but you make no mention of assessing the intrinsic value of the company (which would be difficult to calculate for this company with a changing business model). Why did you select $10 as your entry point? Simply because BB it dropped recently?
At $10, the company is selling for around 5 billion and change. From my understanding of the company's "free" cash flow generation capability, it will only take them 5 - 7 years to produce that much cash. I think $10 is undervalued. The reason why I used $10 is because it is selling around this price. I will still buy it even if it is selling at $13/share. At $13/share, the company is still undervalued in today's interest rate environment. If it goes to $20/share, I will be backing off as it's more or less fairly to overvalued should interest rate goes up.

With $13/share, the company is worth around 6.78 billion, at $20/share, the company is worth around 10.4 billion.

You are getting there, keep on reading investing books/articles/reports written by well known investors (not analyst reports). You should get the data from the source, not from some websites such as Yahoo and Google. If you compare the data from these websites, to their actual reports, you will notice many weird things.
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Nov 9, 2013
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Kasakato wrote:
Apr 2nd, 2016 1:09 pm
Careful guys, ValueInvestor is a self-proclaiemd investing genius. Some may say the next Buffett.

His son is only 5, yet has $20k in an RESP because hes just that great.



Yet he received $100k to date from his parents, fantastic growth.


Lets not forget about the 20 times and under EBITDA test
Damn I wouldn't mind 50K up front + 10K a year from my parents for my child. Indeed, "live is not fair".
[OP]
Member
Jan 10, 2016
313 posts
33 upvotes
Markham, ON
pulkit10 wrote:
Apr 2nd, 2016 11:21 am
I don't think at any point in my post did I insinuate the presence of fraud or a deliberate attempt to confuse the reader. Just saying, that compared to almost all of the reports I read, this was laid out in a very confusing and unintuitive manner.

You're right about the accounting courses in that they are useful but I'm talking simple basic numbers here. If your numbers check out on a very simple level, and you have a margin of safety present, there is a good chance that they'll withstand any complex audits too.

Regardless, what is your thesis behind considering this to be a good investment?
Well, you are actually reading the source annual report. Good for you. It's the first step.
I would still recommend you to take some accounting courses to better understand the numbers. Won't understand them completely, but it would greatly help.

Although the current earnings is negative according to GAAP, but I see strong cash flow generation capability.
[OP]
Member
Jan 10, 2016
313 posts
33 upvotes
Markham, ON
Jon Lai wrote:
Apr 2nd, 2016 12:11 pm
OP, can you describe what parts of the financials do you see make it a good investment? What is its P/E? Projected earnings for the next few years, and relative to the current share price? What is its growth potential, how many new Blackberries will they release and how are you predicting sales to be? Or are you valuing it based on book value, etc.?

Simply coming out and saying it's a good investment without explaining why, and telling people to go read the financial reports doesn't mean much. Anyone can easily say that about any stock, it just makes you look arrogant. Instead, a better approach on a discussion forum would be to provide your analysis on why something is a good or bad investment, and allow people to discuss on your perspective on the valuation.
The nature of a technology company is that you don't protect your past. In the past, under the old management, RIM (former name) was still proud of their legacy hardware. Since John Chen refocuses the company at a different direction (where there is good margin), the company should turn around and it will be reflected in the stock price.

Another thing is that people on this forum doesn't spend the time doing their own research. They only read what analysts put out. Whatever analysts put out are old news, and they were already reflected in the stock price, rendering them useless.
[OP]
Member
Jan 10, 2016
313 posts
33 upvotes
Markham, ON
treva84 wrote:
Apr 2nd, 2016 1:21 pm
Damn I wouldn't mind 50K up front + 10K a year from my parents for my child. Indeed, "live is not fair".
Well, my son's RESP is around 21k now, and he is turn 6 next week. I guess I have over saved for him for school. Oh, this 21k is from the money I put into his RESP account (around 2k a year), not his own money.

I have a well off dad. He is a small business owner. So I get free cars (2 so far, 1 at age 19, and another one when my son was born), and education. My son is his only grandson, so what is wrong with him giving his beloved grandson some money? He knows I won't blow the money away.
It is hard for people who got out of school and has OSAP to pay off, so I was lucky I guess.

I didn't spend a penny of the gift money for my son. I am saving them up for him, so that he doesn't need to struggle with tuition and basic living needs.
[OP]
Member
Jan 10, 2016
313 posts
33 upvotes
Markham, ON
Can we focus on the Blackberry rather than my personal financial situation? I am just putting my money where my mouth is, nothing special.

Blackberry is focusing on services that has good margins, not the hardware side of things. They have acquired businesses that does servicing, and security. And they have purchased a lot of intangible assets. They have sold off a lot of property, plants, and equipment (physical assets). That is why I say they are refocusing their business on the area that makes money, instead of protecting their past. Hence the thread title "New Blackberry".

You can read their annual reports and management will discuss what their plans are. And the financial statements (plus the notes) will confirm what they have discussed. There is no need to do a precise estimate of revenue and earnings (or cash flow), just do approximate estimates, like a huge range.
Deal Addict
Nov 9, 2013
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Edmonton, AB
ValueInvestor wrote:
Apr 2nd, 2016 1:53 pm
Can we focus on the Blackberry rather than my personal financial situation? I am just putting my money where my mouth is, nothing special.

Blackberry is focusing on services that has good margins, not the hardware side of things. They have acquired businesses that does servicing, and security. And they have purchased a lot of intangible assets. They have sold off a lot of property, plants, and equipment (physical assets). That is why I say they are refocusing their business on the area that makes money, instead of protecting their past. Hence the thread title "New Blackberry".

You can read their annual reports and management will discuss what their plans are. And the financial statements (plus the notes) will confirm what they have discussed. There is no need to do a precise estimate of revenue and earnings (or cash flow), just do approximate estimates, like a huge range.
Cash flow has been in long decline - look at the orange line which is funds from operation (FFO).

Yes, it has slightly recovered in 2014 but compared to the previous decline I wouldn't state it's a positive sign. The recovery could represent the improvements from the new business plan, however it seems to me to be a small plug in a very leaky dam. Time will tell what will happen. You can see the analysts aren't really bullish (projected to stay flat, rather than recover) but we can choose to ignore that given your distaste for analysts.

Personally, I don't think there's anything special about BlackBerry. It's a company in proven decline, attempting to turn things around. Furthermore they have lost their moat (hardware using their software) and this is reflected in their sharp decline in return on equity. Based on the objective information at this time I think any meaningful turn around is wishful thinking.

Does the current situation offer an opportunity to get in on the ground floor? Sure - but then you would be speculating with, not investing, your dads money.

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[OP]
Member
Jan 10, 2016
313 posts
33 upvotes
Markham, ON
The company was in bad hands before John Chen took over. So comparing cash flow from 1998 to 2013 is irreverent. The way you present the data "rear view mirror" investing. Rear view mirror is always more clear than the windshield while driving. The good thing is that it's what most analysts are doing.

The declining cash flow from 1998 to 2013 has already been reflected in the stock price. As investor sentiment is super negative towards this company, it produces a great buying opportunity.

Let me refresh what Warren Buffett have taught people how to value a company. The value of a company is based on all the cash (all knowing when and how much) that you could get out of a business over its life time using an appropriate discount rate. So, even if you buy a company that is slowly going out of business, you could still be profitable (not that I think Blackberry is going out of business).
Deal Addict
Nov 9, 2013
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ValueInvestor wrote:
Apr 2nd, 2016 2:45 pm
The company was in bad hands before John Chen took over. So comparing cash flow from 1998 to 2013 is irreverent. The way you present the data "rear view mirror" investing. Rear view mirror is always more clear than the windshield while driving. The good thing is that it's what most analysts are doing.

The declining cash flow from 1998 to 2013 has already been reflected in the stock price. As investor sentiment is super negative towards this company, it produces a great buying opportunity.

Let me refresh what Warren Buffett have taught people how to value a company. The value of a company is based on all the cash (all knowing when and how much) that you could get out of a business over its life time using an appropriate discount rate. So, even if you buy a company that is slowly going out of business, you could still be profitable (not that I think Blackberry is going out of business).
Did you look at the graph? FFO increased from 2004 to 2011, when it then started to decrease to today's levels.

Additionally, you mention that the market is efficient ("cash flow reflected in current price") but then you also go on to say "sentiment is negative", implying you can capitalize on an negative emotion (fear; implying the market is inefficient) - which is it?

Indeed, I do look to the past to help guide my decisions and I will continue to do so until someone reliably proves to me they can predict the future.

Why does today present a great buying opportunity? Cash flow isn't the answer - it isn't increasing based on the FFO evidence presented.
[OP]
Member
Jan 10, 2016
313 posts
33 upvotes
Markham, ON
treva84 wrote:
Apr 2nd, 2016 2:55 pm
Did you look at the graph? FFO increased from 2004 to 2011, when it then started to decrease to today's levels.
Your chart doesn't show the details of each item and the reasons for cash flow. You will need to review the details of each line item and read the notes to determine what really happened.
treva84 wrote:
Apr 2nd, 2016 2:55 pm
Additionally, you mention that the market is efficient ("cash flow reflected in current price") but then you also go on to say "sentiment is negative", implying you can capitalize on an negative emotion (fear; implying the market is inefficient) - which is it?
Well, if the market is really efficient, then it might just push BB's stock price to around $15 (IMO). However, with bad investor sentiment, it got to below $10. As a value investor, my belief is that market is not always efficient.
treva84 wrote:
Apr 2nd, 2016 2:55 pm
Indeed, I do look to the past to help guide my decisions and I will continue to do so until someone reliably proves to me they can predict the future.
In order to predict the future of a company, you will need to understand the business. And you will need to understand what moves the management implement will decrease or increase shareholders' value. This is the hard part.
treva84 wrote:
Apr 2nd, 2016 2:55 pm
Why does today present a great buying opportunity? Cash flow isn't the answer - it isn't increasing based on the FFO evidence presented.
It is the shift from the legacy business to their new businesses as I have mentioned before. This move should generate positive cash flow down the road (unless I am wrong). The company is generating positive cash flow after John Chen took over. Before him, the company was burning cash like crazy. I see a different picture from their reported statements (or that just me). If I am wrong, I will be dearly punished and I should accept the punishment.



It is good that people have different opinions, that is what made up the stock market. And I could be wrong, and take a big loss on it. And you may be right and avoided the loss by avoiding the company. All I can say is that I believe to have made an educated estimate of where the company is going and put my money where my mouth is. This is how investing works. No one is 100% certain where the company is going, but I have a reasonable chance of being right (at least that is what I thought).
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Sep 20, 2014
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ValueInvestor wrote:
Apr 2nd, 2016 1:24 pm
Well, you are actually reading the source annual report. Good for you. It's the first step.
I would still recommend you to take some accounting courses to better understand the numbers. Won't understand them completely, but it would greatly help.

Although the current earnings is negative according to GAAP, but I see strong cash flow generation capability.
I read them enough to get a good overview of the business. I'm mostly interested in the nature of the company's operations and the hard numbers presented. As for accounting courses, I would recommend these:
http://ocw.mit.edu/courses/find-by-topi ... accounting
http://ocw.mit.edu/courses/sloan-school ... ring-2004/

I've found them to be helpful. Though you only really need a basic understanding of accounting to really interpret the financial reports (unless you are talking derivatives, which is a different ball game). I also only aim to separate the real operational earnings of a business (similar to cash flow but with costs added to keep the company operating smoothly).

That said, I still don't think you have presented a credible argument in the defense for Blackberry.

Only thing I have seen so far is that you expect cash generation to be strong in the next 5-7 years. Why is that? The company could easily be bogged down in a cash-war against chief rivals like Microsoft and IBM which provide similar services that BB wants to. Not to mention that they still have a struggling hardware business that they are pouring resources into. Your estimate, based on earning power, is questionable since it is a poor guess currently.

When looking at a company, the annual report is only part of the equation. It gives you the quantitative aspect but I don't think that's enough to make a prudent decision. You also need to evaluate a business on its own merits. Again, what makes Blackberry or anything it does special? If you're buying a company and estimating a cash recovery in 7 years, you're basically buying a struggling business on fair value. And since you are paying fair value for it, what makes it so special that you think that a) it'll stick around for 7 years and b) it'll generate enough cash to make it a worthwhile investment.

There are two ways here: either invest in something that's selling well below its intrinsic value that you really cannot lose (classic Graham) or invest in a great business selling at a fair price. Which one is it?
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May 30, 2005
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ValueInvestor wrote:
Apr 2nd, 2016 1:28 pm
The nature of a technology company is that you don't protect your past. In the past, under the old management, RIM (former name) was still proud of their legacy hardware. Since John Chen refocuses the company at a different direction (where there is good margin), the company should turn around and it will be reflected in the stock price.

Another thing is that people on this forum doesn't spend the time doing their own research. They only read what analysts put out. Whatever analysts put out are old news, and they were already reflected in the stock price, rendering them useless.
What makes you so confident they will be able to generate the same cash flow as in the past?
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Jan 27, 2013
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BlackBerry is trying to be the backbone of the "Internet of Things". Think cars, healthcare, all other important connected devices. Their OS is already in 50% of the cars on the road, and have unmatched security, a proven reliable OS (QNX) and worldwide reach. The potential is there...
[OP]
Member
Jan 10, 2016
313 posts
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Markham, ON
Jon Lai wrote:
Apr 2nd, 2016 5:59 pm
What makes you so confident they will be able to generate the same cash flow as in the past?
Other segments of their businesses are actually growing. The hardware is a drag on profit, and their SAF (system access fee, remember Robelus used to charge us that?) revenue declines dramatically. SAF is for their older models that runs on their OS.

Aside from those, I see positives in software, and security. And they have a sticky business with the government agencies.

Best of all, the company is now net cash flow positive.


btw: It's nice that the stock dropped 3%+ today. As I have mentioned before, I will get in this week, and I bought 500 shares at $9.42. I will deploy the rest after the stock drops 10% or by the end of June 30th, whichever comes first. I only plan on buying $10,000 CAD worth of Blackberry stock.
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ValueInvestor wrote:
Apr 4th, 2016 1:58 pm
Other segments of their businesses are actually growing. The hardware is a drag on profit, and their SAF (system access fee, remember Robelus used to charge us that?) revenue declines dramatically. SAF is for their older models that runs on their OS.

Aside from those, I see positives in software, and security. And they have a sticky business with the government agencies.

Best of all, the company is now net cash flow positive.


btw: It's nice that the stock dropped 3%+ today. As I have mentioned before, I will get in this week, and I bought 500 shares at $9.42. I will deploy the rest after the stock drops 10% or by the end of June 30th, whichever comes first. I only plan on buying $10,000 CAD worth of Blackberry stock.
I wish you best of luck with your investment, but I am not convinced BB is going anywhere good.
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