After the bear thesis on BlackBerry Ltd ( NYSE: BB ) technology was shot down, BB stock bears have recently come up with new theories to justify their pessimism. However, these new theories appear to be based largely on oversights and/or assumptions which appear to be flawed.
One of the most popular theories held by BlackBerry stock bears is that the departure of two executives in the company's licensing department suggests that it is having problems monetizing its intellectual property . According to BlackBerry CEO John Chen , the executives who left do not head any of the company's groups. And, in an era when people routinely leave jobs after two or three years, making assumptions about a company based on the departures of two third- or fourth-tier executives seems like a big leap. Chen also noted that there are 80 people in the group to which the executives belonged, another factor that makes drawing conclusions based on their departure a bit of an overreach.
Moreover, it may be that the executives left because most of the work on BlackBerry's licensing deals has already been completed. As VentureBeat points out, the company's successful lawsuit against Blu, a small maker of Android smartphones, "serve as a test bed as BlackBerry seeks to establish a firmer footing in the patent" licensing realm, setting a legal precedent for further patent pursuits.
Winning IP Battles
In other words, given the company's successful IP licensing battles with Blu and QUALCOMM, Inc. (NASDAQ: QCOM ), the legal framework for BlackBerry's IP lawsuits has already largely been set. Consequently, BB doesn't need to pay big bucks to people who formulate the company's licensing strategy, and they can probably earn more money at companies whose licensing battles are just getting underway. So the departure of the two executives is not necessarily negative for BlackBerry or BB stock.
BlackBerry stock bear Kia Investment Research theorized that auto components maker Delphi Automotive PLC ( NYSE: DLPH ) - which in September agreed to use BlackBerry's QNX operating system for its autonomous driving system - could terminate the deal because it agreed to buy start-up nuTonomy which says it has developed a "full-stack autonomous drive software solution." However, Kia's article shows that the bears still can't or won't understand BlackBerry's main value proposition: its top-notch IT security credentials.
In a press release issued the day that the deal was announced, Glen De Vos, Delphi's CTO, was quoted as saying that "Safety in high performance computing systems is paramount to a production ready autonomous driving solution." And John Wall, general manager of QNX, stated that "With cyberattacks and threats to connected vehicles on the rise, it is imperative that auto manufacturers are provided with software that is safety certified, reliable and secure. This is an area in which BlackBerry QNX excels."
Doubters Offer Little Evidence
Taken together, the statements show that QNX was chosen because it is more secure than competing solutions. Nowhere in the bearish article is it suggested that nuTonomy's software, which appears to utilize the open-source Linux operating system, provides any sort of security. So there is no evidence that nuTonomy provides the IT security that Delphi requires and will pay BlackBerry to provide.
Finally, another BB stock bear, Paulo Santos , suggested that BlackBerry could be guilty of improper accounting, without providing much evidence. Earlier this month, he noted that the company reported $30 million in revenue from a long-term receivable stemming from an IP licensing deal in the second quarter. Then, pointing to a large increase in the company's Canadian revenue in Q2 versus Q1, Santos says it's a "fact" that the receivable is from a Canadian entity because the company's revenue from Canada increased to $43 million in Q2 from $15 million in Q1.
Calling this set of "facts" "extremely suspicious," Santos asked: "Is the contract even real or was it struck with some entity associated with BlackBerry's largest shareholder, which is Canadian?" However, Santos either failed to realize or neglected to mention that in the six months ended August 2016, BlackBerry generated revenue of $104 million from Canada.
In other words, the company's revenue from Canada in the first half of last fiscal year averaged $52 million, significantly higher than the $43 million Q2 total that led Santos to conclude that the $30 million receivable must have come from a Canadian customer.
The reality is that many factors could have caused the company's revenue from Canada to jump in Q2 versus Q1. Maybe a large Canadian bank agreed to use the company's Unified Endpoint Management system. Maybe a large Canadian trucking company agreed to use BlackBerry Radar. Maybe the company obtained a large cybersecurity consulting deal from the Canadian government.
Bottomline on BB Stock
Nor should anyone be shocked that BlackBerry, which has made licensing deals with several very large companies, would receive a $30 million, long-term licensing contract. Samsung Electronics Co Ltd (KRX:005930), Ford Motor Company ( NYSE: F ), and China's TCL Corporation are all huge BlackBerry partners that could have made the deal.
After seeing their thesis about BlackBerry technology disproved, BB stock bears are developing theories that really aren't too plausible. Investors should ignore these unfounded theories and buy BB stock.
As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities.
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