Fabulous news for BlackBerry! Expanding its association with Amazon Web Services is the news of the day, with the stock jumping 40.0%! BB has been the most underestimated and undervalued stock in the tech world. Before the announcement of this news, BB traded at just 2.5 x revenues, a 33.0% discount to its own recent historical valuation. Enterprise software competitors trade at twice that level. The expanded relationship with AWS is meaningful since it forces the street to revisit the investment case.
The reason for this new expansion is to develop and market Blackberry IVY, a scalable and cloud connected software platform that standardizes data generated by vehicle sensors and will allow automakers to customize applications around it, potentially generating additional revenues. In addition, the available tools on this new platform will shorten the time span required to develop applications and connected services across brands.
At the very minimum this partnership to create an intelligent vehicle data platform raises BB’s profile among automakers worldwide and will also do the following likely immediately:
1) Increase the $ content per vehicle for BlackBerry’s QNX suite of products that currently include advanced driver assistance, digital instrument clusters, connectivity modules, handsfree, and infotainment systems that appear in 13 car brands, including Audi, BMW, Ford, GM, Honda, Hyundai, Jaguar Land Rover, KIA, Maserati, Mercedes-Benz, Porsche, Toyota, and Volkswagen.
2) Increase the number of vehicles carrying the QNX platform; currently at 175 million and growing at 25.0% per annum over the last five years.
We at Vulcan Investments have been very patient with this investment, given that the potential in this company is really untapped, calmly accumulating the stock as it started to slide beginning the middle of last year up until recently, from $9.50-$5.50. Our intrinsic value estimate is significantly higher (2.0x) than what we ended up paying for the stock. We will revise the valuation premise, once we know financial arrangement and the scale of investments required from BB going forward.