On a morning where the Nasdaq slid solidly into the red, down by more than 1%, BlackBerry (BB) served as a beacon of hope for the bulls, up more than 2.5%.
Giving shares a lift on the day is the company's acquisition of Cylance for $1.4 billion all-cash deal. Cylance is an artificial and cybersecurity company, which fits perfectly into BlackBerry's new business model. Before the deal, Cylance had reportedly considering an IPO.
Once Apple (AAPL) seized control of the smartphone market via the iPhone, BlackBerry devices quickly dwindled in popularity -- despite its group of hardcore enthusiasts. In any regard, BlackBerry turned to licensing its devices instead, while pivoting its main business to software and services.
Wall Street has been skeptical to say the least, although shares have roughly doubled from its lows a few years ago.
BlackBerry hopes its acquisition of Cylance will help bolster its suite of cybersecurity offerings, which include Microsoft (MSFT) Office applications, several notable automakers and corporate-issued smartphones. Cylance uses artificial intelligence tools to help prevent cyber attacks and as these technologies advance, it puts BlackBerry in a position to lead in protection services going forward.
One of the first questions that came from the deal announcement is, can BlackBerry afford it? Given that it has a market cap of just $4.8 billion, that's a legitimate concern.
Last quarter, BlackBerry had $2.26 billion in cash and short-term investments -- somewhat surprising, given its low market cap -- to just $739 million in long-term debt, down by about $1 billion over the last three years. The fact that BlackBerry was able to pull off the deal without saddling its balance sheet in debt, and do so slightly below what some outlets believed would come in the $1.5 billion range is also beneficial.
That said, it does reduce the company's cash balance by two-thirds while at the same time, BlackBerry's business isn't exactly akin to an ATM.
The big question will be whether BlackBerry can turn positive free-cash flow with its new acquisition. If it can offer compelling services and bolster its lead in the connectivity, Internet of Things and automotive cybersecurity space, then this acquisition will surely help.
Cylance generated $130 million in fiscal year 2018 sales, with a 90% growth rate. BlackBerry would not cite a revenue multiple based on results for the coming year, but suggested the price comes to less than seven times projected annual revenues, TheDeal's Chris Nolter wrote Friday afternoon.
While BlackBerry's CEO John Chen told investors that Cylance fits the acquisition criteria that he laid out during the company's June annual meeting, he apologized for keeping them waiting.
"I'm sorry it took so long," Chen said. "But it was very important to us that we get it right, and we don't overpay too much."
Consumers may have given up on BlackBerry devices, but companies have long loved BlackBerry's operating system and its back-end security. Nowhere was that more clear than at this year North American International Auto Show (NAIAS).
BlackBerry explained its partnerships with Ford Motor (F) and Jaguar (now apart of Tata Motors), which will use Jarvis, BlackBerry's new cybersecurity product aimed at connected vehicles and Internet of Things applications.
Many investors remain skeptical of BlackBerry and some may even doubt these end markets. But consider that 10 million new connected "Things" are activated each day. Or that "BlackBerry software powers 60% of connected cars on the road today and has the No. 1 market share in telematics and infotainment," Chen said in a presentation at the NAIAS.
If Cylance can help bolster BlackBerry's fundamentals, it could be a big-time win for a company that's been looking for a "W" for quite some time.
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