Today witnessed a 16% surge in BlackBerry's stock price.
Today witnessed a 16% surge in BlackBerry's stock price.
Shares of once prominent smartphone maker BlackBerry (BB) dropped by 3.67% before 11:40 a.m. ET on a Monday, only to unexpectedly surge 16% after announcing its plan to sell its Cylance endpoint security assets to private cybersecurity firm, Arctic Wolf.
Transitioning from its smartphone market, BlackBerry now focuses on software development for cybersecurity and Internet of Things (IoT) applications. The sale of its Cylance segment, which attracts Arctic Wolf with its potential worth of around $160 million, is the main event.
The Arrangement
Arctic Wolf will pay for the acquisition by offering 5.5 million shares of its unlisted stock, worth approximately $40 million, as well as providing $80 million in cash upon closing. The final payment of $40 million will be made a year post-closure.
The specific details of the assets gained by Arctic Wolf are still unclear. However, BlackBerry has confirmed that its "Secure Communications portfolio of businesses," generating an annual revenue of $378 million, will remain part of its cybersecurity division. The loss of revenue from Cylance, currently reporting around $189 million annually (as of 2021), is now a question for investors. Depending on Cylance's financial contribution today, the deal's valuation could range between 0.8 and 0.4 times annual sales.
Given that BlackBerry's stock sells for 2.5 times annual sales, this sale price does not appear to be advantageous. After the deal, the majority of revenue will stem from licensing and IoT services, amounting to around $475 million annually.
Is BlackBerry stock a valuable investment?
As the terms of the sale remain a mystery, investors are left with many unanswered questions about the future of BlackBerry. The next earnings report will likely provide some much-needed insights.
For now, BlackBerry is an unprofitable enterprise, reporting a loss of $138 million over the past year and displaying $81 million in negative free cash flow. Selling off a significant portion of its business at a seemingly low P/S valuation does not promise an improvement in the company's financial standing.
In light of the sale, investors are now questioning the future profitability of BlackBerry, as the company reported a loss of $138 million over the past year and displayed $81 million in negative free cash flow. With the sale of its Cylance segment, BlackBerry aims to reinvest in its software development for cybersecurity and Internet of Things applications, potentially focusing more on licensing and IoT services for future financial growth in the realm of finance and investing.