BlackBerry Agrees to Sell Patents (Again)

We maintain our $4.90 fair value estimate for no-moat BlackBerry BB shares after the firm announced a deal for the sale of its noncore patent portfolio. The agreement represents the pending culmination of a tumultuous two-year process for BlackBerry. We reiterate that we like the decision to sell these noncore patents, from which BlackBerry had generated licensing revenue, to generate cash to invest in the core business. We think the deal is a fair price for the portfolio—we estimate about $500 million in total compensation including profit sharing. We don’t change our thesis on the company and believe even additional cash for investment won’t be enough to inflect a flailing cybersecurity business. We maintain our view that the Internet of Things business is the bright spot for the company. Shares trade below our fair value estimate, but we would point investors to moatier software names and emphasize our Very High Uncertainty Rating.

BlackBerry agreed to sell its patent portfolio to Key Patent Innovations, an Ireland-domiciled patent monetization firm. BlackBerry will receive $170 million in cash up front, followed by $30 million in cash within three years. Thereafter, BlackBerry will receive a share of the profits from monetization, with a maximum compensation of $900 million. The patents being sold have a weighted average life of seven years, and at BlackBerry’s former licensing profitability, we estimate it will recoup about $500 million from the deal over the next seven years. This would represent a slight haircut from the initial deal with Catapult announced a year ago (which subsequently fell through), but we acknowledge there could be upside with aggressive licensing on the part of KPI.

BlackBerry is in its quiet period, and we look forward to hearing more about plans to invest the cash proceeds and its fiscal 2024 outlook on its fiscal fourth-quarter earnings call on March 30.