Merry Christmas! With more updates


A few updates in the run-up to Christmas:

  • Dividends & buybacks
    • Following issues with its latest Galaxy Note, Samsung decided to support its share price by boosting its dividends to 50% of its free cash flow. Samsung is also facing pressure from activist fund Elliott.
  • Unicorns & valuations
    • Stripe joined the unicorn club last month after being valued at $9bn despite raising less than 2% of this amount.
    • Unicorns in need to add liquidity to their shares but not meeting (yet) public market requirements have increasingly relied on secondary markets to trade shares, despite the lack of transparency associated with these semi-private markets. $1.2bn worth of transactions are expected to take place in 2016 at a time where tech company IPOs are expected to reach their lowest level since 2009 and investors are becoming increasingly cautious about overvalued sectors, including on-demand delivery.
    • Uber reported a $800m third-quarter loss although it states it is now cash-flow positive in some mature markets. Consolidated profitability seems far away still.
    • The mayor of Barcelona fined Uber and HomeAway €600k each last month for not complying with local licensing requirements. In France, Airbnb committed to send tax data to French authorities automatically rather than leaving it up to individuals to declare as it used to be the case. Registration will be made compulsory for landlords willing to let their property more than 120 days a year.
  • Cybersecurity
    • Yahoo revealed that 1bn users were stolen personal data in 2013 in an attack dwarfing the one reported in 2014. Compromised datasets may include names, email addresses, telephone numbers, birth dates as well as poorly encrypted passwords. This security issue may thus create vulnerabilities for other websites, as users tend to recycle the same password for multiple websites, according to Lisa Pollack from the Financial Times.
    • Hackers targeted the SWIFT messaging network with the help of Bangladesh central bank officials, highlighting the vulnerability of IT systems to insider fraud.
    • A couple of weeks ago France unveiled its cybersecurity policy. The country aims to build defensive capabilities as well as an offensive arsenal, which could include traditional weapons.
    • Several hedge funds investors warned big data sellers that they were failing to properly hide personal information. Cross-referencing information enables recipients to waive the anonymity of the data.
  • Active & passive investing, bonds & equity
    • The passive investing frenzy seized bond markets, which now ‘host’ more than $600bn of fixed income ETFs, threatening the stability of the financial system, according to experts. The bubble around fixed income is expected to weaken in the coming months given the Fed’s willingness to raise interest rates three times next year – subprime borrowers have already started to feel the heat.
  • Blackberry, LinkedIn, Twitter, Apple
    • Blackberry raised its full-year profit outlook as its software & services business generated more than 50% of its sales over the last quarter. Management expects to bring the company back to profitability on an adjusted basis in the full year.
    • Russian authorities blocked access to LinkedIn for its 6 million users in the country as Russian legislation requires personal data of Russian citizens to be stored on Russian territory.
    • LinkedIn added a robot tool to its chat interface in order to trigger more numerous conversations between individuals and ultimately gathering more data on its users.
    • For its part Twitter suffered another executive departure as its chief technology officer Adam Messinger resigned after 3 years in the job.
    • Apple is the latest investor to express interest in Softbank’s $100bn planned tech fund.

I unfortunately doubt that I will have the time to publish another post before the end of the week, so I wish all readers a Merry Christmas and I look forward to publishing again in the New Year at the latest.

Blackberry: entangled in the weeds

Blackberry closed an era of mobile phone history by announcing at the end of last month that it would stop manufacturing all handsets. This decision followed a first move in July aimed at discontinuing smartphones with physical keyboards such as the Classic to focus on touchscreens. The transition period was undoubtedly short but expected as John Chen, Blackberry’s CEO, had announced that he would close the handset division if it could not turn profitable by end September.

A future collector's piece. Credits:
A future collector’s piece. Credits:

We could not criticise Blackberry for failing to try and reverse its fortune though. In the same month of July it released a new Android-powered phone, the DTEK50, lucidly dropping its out-of-favour Blackberry OS – which the firm for long thought was protected by subscription fees levied from its 80m+ users. This ‘last-ditch’ attempt met the same fate as the Priv, another Android phone the Canadian firm launched in November 2015. Despite advertising proprietary encryption technology, both models did not prevent Blackberry’s market share from dropping into ‘0.1% territory’ (even the American Senate dropped the phone earlier this year), which makes profitability almost impossible to reach. Handsets will now be manufactured under license and sold primarily in emerging Asian markets, including Indonesia.
Blackberry has since then decided to focus solely on enterprise & government security software, which now account for two thirds of the company’s revenues. The division has been boosted by a string of acquisition in recent years, including Good Technology. Former competitors, such as Samsung, have now become partners.

Blackberry has now found a more modest niche to focus on, although this does not mean that trouble is over. Last June I wrote (privately) a short equity analyst note on the firm, in which I concluded that the stock was a ‘sell’ at $7.26 per share – price is $7.68 as of today.

Blackberry share price evolution since 2006. Source: Yahoo Finance.
Blackberry share price evolution since 2006 (in USD) – flat electro-encephalogram. Source: Yahoo Finance.

I still believe many of the conclusions are still relevant:

  • The software arena (or ‘Enterprise Solutions & Services’ in Blackberry language) is not immune from competition, as Samsung and Android have been developing their own range of services and applications, and it remains Blackberry’s sole lifeline. Given that Blackberry has not yet secured a robust and diversified range of B2B customers for its solutions, the ground is ‘up for grab’.
  • Blackberry has built its security software through a range of acquisitions (7 over 2 years) completed at a fast pace and which may have subsequently been overpaid – 50% of the $724m spent on acquisitions in 2016 has been recorded as goodwill. Furthermore, the harmonious integration of these various pieces as well as the construction of a real ‘in-house’ R&D capability in this field remain to be proven – especially since Blackberry has been cutting its R&D effort over the last 5 years.
Historical evolution of Blackberry's annual R&D 'effort' between FY12 and FY16 (in USDm). Source: Author research.
Historical evolution of Blackberry’s annual R&D ‘effort’ between FY12 and FY16 (in USDm). Source: Author research.
  • The value of shareholders’ equity now largely depends on the value of intangible assets, primarily patents, whose valuation could be subject to significant impairment. As an example in 2015 and 2016 Blackberry decided to cease enforcement and abandon legal right and title to patents with a net book value of $34m and $136m respecctively (approximately 5% of today equity’s book value).


Readers born after 1995 will certainly watch the following video with ‘amused’ eyes – yes, this used to be the sharp end of mobile technology.