BlackBerry Ltd , is a much better bargain acquisition than Twitter Inc . Every market fall has its leaders. This time the tech sector got battered. And the rumor mills have been working overtime to find the next big acquisition target. Media has been rife with reports of how something is cooking on the Twitter front. But at the current market price, the micro-blogging site looks much overvalued.
When Facebook bought WhatsApp for $19 billion in 2014, the fast-growing messaging app had 450 million users. Twitter Inc has about two-thirds (70 percent to be precise) that — 316 million users — so would be valued at approximately $13.3 billion. Yet the current market capitalization of Twitter, even after the recent declines, is about $18 billion – meaning another 25 percent or so needs to be lost for Twitter to be considered fairly valued.
BlackBerry is Fairly Valued
Contrast that with BlackBerry Ltd , , which has roughly $3.3 billion in cash. That is close to 87 percent of its total market cap. Even after taking into consideration the $1.5 billion in debt, it’s a very big hedge for any prospective buyer.
The operating cash flow is another attractive draw for BlackBerry. At the end of fiscal 2015 that figure stood at around $800 million. Twitter Inc has never managed to post a GAAP profit. And going by the recent earnings trend, the chances of that happening anytime soon are remote.
With so much cash in books, and a healthy cash flow, it’s hard to argue that BlackBerry Ltd is about to disappear anytime soon. Furthermore, BlackBerry has outstanding software expertise via its QNX and BB10 operating systems. Add to that a whopping 44,000 patents related to wireless technology.
The firm is definitely unprofitable. But a lot of the bad news is already priced in the stock – valued slightly above cash in hands, and less than 1.3 times next year’s sales. Twitter Inc currently trades at 5.5 times next year’s revenue – not cheap by any stretch of imagination.
BlackBerry is a Better Buyout Target
Buyout rumors surrounding BlackBerry Ltd ,, have been ongoing. Remember the 2013 debacle with Fairfax Financial? More recently, a top honcho at China’s Xiaomi evinced interest in taking over the Canadian firm. But nothing fructified.
The market is again abuzz with big buyouts happening in the tech space. Twitter Inc is the current media favorite. Not a day goes by when a Google, or a Microsoft, is highlighted as a possible suitor. But for investors chasing a tech acquisition in hopes of a buyout pop, BlackBerry Ltd presents a much more plausible scenario.