Although BlackBerry Ltd (NYSE:BB) stock has been weak in recent weeks, it appears that the CEO John Chen, has masterminded a classic virtuous cycle involving acquisitions, company news, and the price of BB stock. (BlackBerry recently changed its symbol from BBRY to BB as it moved its stock to the New York Stock Exchange from Nasdaq ).
Various acquisitions that Blackberry has made over the past several years, such as its purchase of enterprise mobility management vendor Good Technology and its deal for vehicle operating system maker QNX Software, have expanded the company’s software and services business, helping BB stock to rise to around $11 from a 52-week low of $6.65.
Another factor behind the rebound of BlackBerry stock has been good news, including a partnership with Delphi Automotive Plc (NYSE:DLPH) on autonomous car operating systems, which wouldn’t have been possible without its acquisition of QNX, and the favorable IP licensing settlement with Qualcomm, Inc (NASDAQ: QCOM).
The key point, though, is that the higher price of BlackBerry stock will enable it to spend more on acquisitions because it can use stock it has bought back to help fund the acquisitions. The companies it acquires, along with future IP licensing deals, will then boost the price of BB stock further, enabling it to make yet more high priced acquisitions. Then, of course, the cycle will continue.
Where We are Now and Upcoming Catalysts
So where are we in that cycle now? I believe that Chen is waiting for a few developments that are likely to boost BB stock further before making the acquisitions that he is looking to carry out. These include a possible $1.5 billion patent licensing settlement with Avaya and similar settlements with other companies.
Then there’s the news of BlackBerry’s auto business. On the second-quarter results conference call in September, Chen mentioned that the company had obtained “impressive design wins in auto.” With each of these design wins, BlackBerry gets closer to generating significant revenue from these customers. Wall Street, in turn, will become more convinced that BlackBerry’s auto business is a legitimate money maker, boosting BB stock much further.
Chen also noted that BlackBerry had obtained “deal wins across numerous federal agencies” while its public sector business outside of the U.S. was making a strong contribution.
Interestingly, demand for the company’s cybersecurity services is “outpacing” what the company could deliver, according to the CEO. BlackBerry’s cybersecurity business should also benefit from the EU’s imposition of cybersecurity benchmarks that companies must meet by May 2018.
So with these revenue boosts from its government and cybersecurity businesses, we should expect results to improve, fueling BB stock and enabling Chen to spend more money on acquisitions.
Those acquisitions, in turn, will enable BlackBerry to reach more customers and/or improve its product offerings, thereby boosting BlackBerry’s results further, causing BB stock to rise more and enabling the company to use its shares to make yet more acquisitions. Hence, the virtuous cycle.
Bottomline on BB Stock
I believe that Chen will make acquisitions around the middle of next year, when BB stock has added 50%-plus and reached the $15-$20 per share range. Given the likely upward trajectory of BlackBerry stock and the virtuous cycle that has been created, longer-term investors should definitely buy BB stock.
As of this writing, Larry Ramer owned shares of BlackBerry stock.
