BlackBerry (BB) to Sell Patents to Strengthen Balance Sheet
BlackBerry Limited BB has announced that it will sell most of its non-core patents and patent applications to Malikie Innovations, a subsidiary of Key Patent Innovations Limited. The agreement will involve a combination of cash at closing and potential future royalties totaling up to $900 million.
The transaction is a significant move for BlackBerry, as it will strengthen the company's balance sheet, simplify its business and enable it to focus on its core Internet of Things (IoT) and Cybersecurity businesses.
The patent sale agreement will involve approximately 32,000 patents and applications related to mobile devices, messaging and wireless networking. However, it excludes patents and applications necessary to support the company’s current core business operations and all existing revenue-generating agreements.
BlackBerry Limited Price and Consensus
BlackBerry Limited price-consensus-chart | BlackBerry Limited Quote
Per the agreement, BlackBerry will receive $170 million in cash on closing and an additional $30 million in cash by the third anniversary of closing. Also, BlackBerry will receive annual cash royalties from the profits generated from the sold patents.
The royalty payments to BlackBerry will initially be capped at $700 million, with an annual cap increase of about 4% of the remaining portion of $700 million that was yet to be paid.
The completion of the transaction is conditional upon satisfying all regulatory conditions under the Hart-Scott-Rodino Antitrust Improvements Act in the United States and the Investment Canada Act.
Additionally, BlackBerry terminated its agreement with Catapult IP Innovations regarding the patent portfolio sale transaction. The company disclosed that it was then in advanced term sheet discussions with another party which was fully financed and completed its due diligence on the patent portfolio.
However, as Catapult was unable to secure financing to complete the transaction on amended terms which were acceptable to BlackBerry, the proposed transaction fell flat.
Overall, the patent sale agreement with Malikie is a positive step for BlackBerry, as it will allow it to focus on its core businesses while also generating substantial revenue through royalties.
Blackberry provides intelligent security software and services to enterprises and governments around the world. It offers devices and software platforms for managing security, mobility and communications among hardware, programs, mobile apps and the IoT.
For fiscal 2023, BlackBerry expects total revenues of approximately $656 million, with IoT revenues likely to be around $206 million and cybersecurity revenues expected to be $418 million.
However, revenues from the cybersecurity business are expected to be lower than the outlook provided during the last-reported quarter, primarily due to certain large government deals shifting to fiscal 2024.
BlackBerry currently has a Zacks Rank #3 (Hold). Shares of the company have lost 50.1% in the past year compared with the sub-industry’s decline of 6.7%.
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Stocks to Consider
Some better-ranked stocks in the broader technology space are Arista Networks ANET, Perion Network PERI and Pegasystems PEGA, each presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 14.2%. Shares of ANET have increased 24.4% in the past year.
The Zacks Consensus Estimate for Perion’s 2023 earnings is pegged at $2.69 per share, rising 16% in the past 60 days. The long-term earnings growth rate is anticipated to be 25%.
Perion’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 31.7%. Shares of PERI have increased 62.2% in the past year.
The Zacks Consensus Estimate for Pegasystems 2023 earnings is pegged at $1.35 per share, rising 101.5% in the past 60 days.
Pegasystems earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, the average surprise being 11.2%. Shares of the company have declined 41.4% in the past year.
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