BlackBerry: Transformed into Enterprise Software Security Firm

Rodrigo Lopez Buenrostro of KUE Capital presented his in-depth investment thesis on BlackBerry (NYSE: BB) at Wide-Moat Investing Summit 2018.

Thesis summary:

BlackBerry is a software security company. It has left behind the smartphone hardware market it dominated in the pre-iPhone era. The company offers security solutions for enterprises, including nine of ten of the largest commercial banks and insurance companies, eight of ten of the largest healthcare and aerospace/defense companies, and all of the G7 governments.

Blackberry’s wide moat is supported by the solid patent portfolio it has built over the past thirty years, including elliptic curve cryptography (ECC), essentially the most secure and efficient cryptography for the near future. CEO John Chen has proven an ability to monetize the patent portfolio since he took office five years ago, resulting in a company with 72% gross margins, net cash on the balance sheet, and 75% of revenue recurring in nature.

While the patent portfolio provides downside protection in terms of valuation at ~$11 per share, the upside stands at a value of $25-27 per share in five years, assuming conservatively that BB maintains market share in the fragmented cybersecurity industry.

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About the instructor:

Rodrigo Lopez Buenrostro works at Kue Capital where he invests to preserve capital over time. He currently pioneers the asset management division within the firm and divides his time between equity research and manager selection with a global mandate. Previously, Rodrigo worked as a summer equity analyst at SW Investments, a value-focused hedge fund in Chicago. He began his professional career as an Investment Banker at BBVA. Rodrigo is a recent MBA graduate from Chicago Booth ’15 where he earned a concentration in Analytic Finance and was actively involved in the IM / HF community. He studied Business and Accounting at ITAM (Mexico Institute of Technology) for undergrad where he wrote his thesis on hedge funds and started to invest personally. Rodrigo has always had an interest in finding the real value of assets, reading, and volunteering at NGOs to teach basic concepts related to investing.