BlackBerry Internet Of Things Spin-off Notes

October 16, 2023 Update

Blackberry (BB) announced on October 4, 2023 that it will separate its Internet of Things (IoT) business by the first half of next fiscal year. The ultimate plan is to pursue an IPO of that division to unlock shareholder value.

Blackberry – at face value – looks like a company in trouble. In its recently announced fiscal Q2, revenue shrank 21% y/y. Management clearly believes the IoT business has strategic value given the announcement to separate it from the rest of the company. However, that business shrank 2% y/y in the most recent quarter (although it did grow sequentially).  The RemainCo will be Blackberry’s cybersecurity business which shrank 29% y/y. On a consolidated basis, the company burns cash (negative $270MM of free cash flow last year).

There likely is strategic value in BB’s IoT business as Veritas, a well-regarded private equity company, is rumored to be interested in buying the company. However, I have no insight as to what that strategic value is or what an appropriate valuation would be. Blackberry currently trades at 88x forward EBITDA / 2.8x forward sales and doesn’t look particularly attractive.