This Changes the Game for BlackBerry Stock

BBRY StockBBRY Stock Positioned for Further Gains

For BlackBerry Ltd (NASDAQ:BBRY), the good days are here again. The company won its arbitration case against QUALCOMM, Inc. (NASDAQ:QCOM) and was awarded almost $815.0 million in royalty overpayments. BBRY stock shot up by almost 17% and now sits comfortably at $8.00-plus levels.

The security software and services company made this announcement on Wednesday.  Moreover, a final award including interest and reasonable attorney’s fees will be issued after a hearing on May 30 this year. (Source: “BlackBerry Awarded U.S. $814,868,350.00 in Arbitration Against Qualcomm,” BlackBerry Ltd, April 12, 2017.)

With this win, the company gets the entire sum of $814.87 million back. BlackBerry’s current market capitalization stands at $4.7 billion, which is about five times the royalty amount.

With the difficult battle behind it, the company can improve its focus on growth, which has been the prevailing theme for quite some time now. As the former leader in mobile phones, BlackBerry has shifted its efforts to be a software company, which is clearly bearing fruit.

The company reiterated last month that it expects to make an adjusted profit this year. With CEO John Chen at the helm, it appears that BlackBerry is likely to have a bright future in software and services. Although the turnaround efforts may take time, it is going in the right direction and the BBRY stock price movement reflects that.

BlackBerry stock has posted impressive gains of 24% over the past one year as compared to the 13% returned by the S&P 500 in the same time period. After closing down its hardware business, the company has been focused on its turnaround efforts involving security software and services, and BBRY stock investors are more comfortable with the future direction of the company.

BBRY stock chart

Chart courtesy of StockCharts.com

BlackBerry Ltd had reported strong fourth-quarter results early this month, surprising everyone on the Street. BBRY jumped more than 11% on the news as investors gained more confidence in the new strategy of the company. Chen had stated that BlackBerry continued to grow its mix of software and services revenue, which led to the expansion of operating margins and generation of free cash flow. Moreover, he expects the company to grow at or above the overall market in software business.

This brings us back to the significance of the win in the arbitration case. BlackBerry is on its way to posting higher growth this fiscal year, and this surprise $815.0 million cash bounty gives it more space for maneuvering. As the services business grows organically, it could be given a big push by pursuing acquisition opportunities. The company had reported a cash pile of $1.7 billion at the end of the fourth quarter. With strategic acquisitions, the company can push its growth further up in the coming years.

Focus on Connected Cars to Boost BlackBerry Stock

At the International Consumer Electronics Show this year, BlackBerry announced the most advanced and secure embedded platform for autonomous drive and connected cars—”QNX Software Development Platform 7.0.” With the high growth potential expected in the autonomous driving space, BlackBerry is positioning itself for the emerging trends, besides raising the bar for security and performance in cars. (Source: “BlackBerry QNX Launches its Most Advanced and Secure Embedded Software Platform for Autonomous Drive and Connected Cars,” QNX Software Systems Limited, January 4, 2017.)

A good example is its deal with Ford Motor Company (NYSE:F) to provide software, which includes its QNX operating system, for the auto company’s connected cars. BlackBerry had been indicating for a while that with the focus shifting to connected cars, the Internet of Things, Big Data etc., the company stands to gain from these developments.

The company’s QNX operating system, which used to be on “BlackBerry 10” phones, is becoming a reliable technology for use in mapping and communication systems in connected cars.

The Bottom Line on BBRY Stock

All these developments should not make one forget the fact that there is strong growth from the company’s transition to licensing-only model. Giving up hardware was a tough choice but good for the company’s bottom line. BlackBerry has recently entered into a long-term software licensing agreement with Optiemus Infracom Ltd (BOM:530135) to design, produce and sell BlackBerry-branded mobile devices in India, Sri Lanka, Nepal, and Bangladesh. This implies a bigger market for BlackBerry’s software and more growth for BBRY stock.

One of the most comforting factors for investors is that BlackBerry has been maintaining a good cash balance. Going forward, investors can count on the company’s prudent use of cash in making strategic moves in the software space. Although, there could be some hiccups along the way, BlackBerry stock is likely to inch towards higher levels.