Blackberry: Poster Child for Contrarians

03/23/2018 5:00 am EST


Benj Gallander

President, Contra the Heard

When Blackberry (BB) was initially bought in our portfolio in 2013, some reckoned we were taking on a clunker — but we saw a mud-covered Cadillac with three, maybe four, flat tires, jests Benj Gallander, a leading contrarian value investor and editor of Contra the Heard.

Indeed, this company is becoming a poster child for our methodology: an unloved stock goes through a tough period, rebounds and becomes loved — or at least liked — again.

In the latest quarterly results, Blackberry pulled off another beat and the stock soared. Non-GAAP EPS came in at three cents, when the prediction was break-even. Revenue of $226 million exceeded forecasts of $215 million, and software and services grew 11.5%.

In referring to Blackberry, there's been no more talk about a "troubled smartphone maker". Rather, the market is excited by such new opportunities as autonomous driving, the Internet of Things and cyber security.

Guidance for the fiscal year is bold, with non-GAAP revenue in the range of just under US $1 billion, positive earnings and full year free cash flow.

After the quarter, management announced a partnership with Baidu (BIDU). The Chinese tech company will use Blackberry's QNX operating system as the foundation of its Apollo autonomous driving platform, which has attracted over 70 partners.

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The firms will also work together to integrate Baidu's CarLife program, DuerOS AI assistant software, and high-definition maps into QNX. This deal offers a gateway into China's automotive market and should shush naysayers who see Google (GOOGL) as the unassailable industry leader.

If you're not slightlyfond of Blackberry now, you may never be. It is on its way to becoming the pure-play software company that John Chen envisioned when he signed up. He know that those organizations that survive are the most adaptable.

Fairfax Financial Holdings recognized this too when it invested. The company's burgeoning strength is attractive and it's likely that other companies are watching. Might an takeover scenario be in stores?

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