BlackBerry Ltd (BBRY) Blues: Can Acquisition Boost Stock?

Telecommunication and wireless equipment company BlackBerry Ltd (NASDAQ:BBRY) announced on September 4 plans to acquire Good Technology for $425 million in cash. While the move is intended to help Blackberry’s long-term goals in boosting its mobile-security and software, the stock dropped almost 5% in in trading on Friday following the announcement.

Blackberry shifted its focus from smartphones to software almost a year ago in an effort to start generating positive cash flow. Back in November of last year, Blackberry launched its BES 12 platform that was designed for businesses to connect with all mobile devices, including Apple iOS and Google Android. While this initiative was a temporary success, it wasn’t enough to help Blackberry’s stock as it plummeted almost 34% year-to-date.

The company hopes that getting exposure to Good’s customer base of more than 6,200 organizations in addition to its own 20,000 enterprises will help boost revenue and eliminate some competition.

Blackberry CEO John Chen said, “By acquiring Good, BlackBerry will better solve one of the biggest struggles for CIOs today, especially those in regulated industries: securely managing devices across any platform. By providing even stronger cross-platform capabilities our customers will not have to compromise on their choice of operating systems, deployment models or any level of privacy and security. Like BlackBerry, Good has a very strong presence in enterprises and governments around the world and, with this transaction, BlackBerry will enhance its sales and distribution capabilities and further grow its enterprise software revenue stream.”

Canaccord Genuity analyst Michael Walkley weighed in on Blackberry on September 4 in light of the company’s acquisition announcement, reiterating a Hold rating on the stock with an $8 price target. Walkley wrote, “With the majority of Good’s customers using iOS or Apple devices, we view this acquisition as positive for BlackBerry’s ability to broaden its customer reach, especially with our survey work indicating ongoing share gains for Apple in the enterprise market.”

However, the analyst believes “BlackBerry faces the challenging task of selling not just EMM subscriptions but must also upsell increasing amounts of VAS and close additional technology licensing deals to meet its F2016 software-related sales target.” Furthermore, Walkley believes “the continued steep decline in high margin services business and ongoing tepid hardware sales will remain a headwind to meaningful and sustained profitability during F16/F17.”

Michael Walkley has an overall 57% success rate recommending stocks and a +16.8% average return per recommendation when measured over a one-year horizon and no benchmark. He has rated Blackberry 40 times total since 2009, earning an 89% success rate recommending the company and a +23.9% average return per recommendation.

Similarly on September 4, UBS analyst Amitabh Passi reiterated a Neutral rating on Blackberry with a price target of $10. He noted, “Strategically, with Good Technology, BlackBerry will now have a more comprehensive platform to secure mobile devices across any platform – iOS, Google’s (GOOGL) Android, Microsoft’s (MSFT) Windows, and Blackberry. With Good, BlackBerry will also expand its global enterprise and government customer base. Good serves more than 6,200 organizations, with particular strength in Government, A&D, healthcare, and commercial banks. Good with its Good Dynamics platform will also bring access to over 2000 independent software vendor (ISV) apps.”

On average, Amitabh Passi has a 56% success rate recommending stocks and a +8.5% average return per recommendation when measured over a one-year horizon and no benchmark. While Passi has rated Blackberry 21 times total, he has only given the stock neutral ratings, thus earning no success rate or average return.

Out of 15 analysts polled by TipRanks who have rated Blackberry within the past three months, 13 analysts are neutral on the stock and 2 are bearish. The average 12-month price target on Blackberry is $8.39, marking a 15.25% potential upside from where the stock last closed.

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