By the numbers: Blackberry's updated valuation based on July 2013 numbers

A couple of weeks ago, Blackberry published their latest revenue numbers for the quarter. The market claimed disappointment, even disillusionment, and the stock price crashed.

I finally had the time to download the 10 K filings, and I decided to see what the real story was from my perspective. I might add that readers need to do their own analysis to make any real decisions around buying or selling the stock.

Reviewing my prediction

In my previous post in April on Blackberry valuation, I had looked at the revenue figures for each quarter. I had then come up with my own quarterly estimates. Now, we know what the real numbers were as well. I have included the actual numbers in an additional column on the right of my estimates. Here is the table.

In millions
	Jun 2, 2012	Sep 1, 2012	Dec 1, 2012	Mar 2, 2013	Jun 1, 2013 (E)	Jun 2, 2013 (A)
North America	$794	$868	$647	$587	$800	$761
Europe, Middle East & Africa	$1,028	$1,087	$1,160	$1,227	$1,100	$1,343
Latin America	$580	$520	$535	$479	$575	$449
Asia Pacific	$405	$386	$385	$385	$400	$518
Total Quarterly Revenue	$2,807.00	$2,861.00	$2,727.00	$2,678.00	$2,875.00	$3071

At this point, I am not sure what the fuss is about. With the exception of North America and Latin America, the phone fared quite well and even beat my personal expectations overall.

Looking Ahead

Now the task of looking ahead. To make projections, I had to make some assumptions. These assumptions are as follows:

1. Terminal Value of the stock is reached in Year 5
2. Revenue increases 10% Year over Year till Year 5 (This is the biggest assumption in the game. Others may be presuming a 2-3% growth or even a negative growth in their calculations.
3. Cost of Revenue is 62% of the Revenue
4. Operating expense reduces by 5% Year over Year till Year 3 when it becomes 20% more
5. Annual Depreciation is $1M except Year 3 when it is $2M
6. Tax rate is 25% each year
7. Most importantly, the annual revenue is 6 times the latest quarterly revenue. More about this later.
8. Beta is 1.59
9. Debt Financing Rate is 4.8%
10. Equity Financing Rate is 6.3%
11. Terminal Value estimates
    1. Growth becomes 3% after Year 6
    2. Alternatively, stock price stabilizes at 12 P/E based on Year 6 revenue.
    3. Actual Terminal value was mid point between these 2 estimates
12. The value of the company is Present value of growth phase + Present value of the terminal value.
13. This gives us a per stock intrinsic value of $44 over the next 6 years.

		Year 1	Year 2	Year 3	Year 4	Year 5
	FY 2012-2013	FY 2013-2014	FY 2014-2015	FY 2015-2016	FY 2016-2017	FY 2017-2018
		4
Annual Revenue Factor	$11,073,000	$12,284,000.00	$13,512,400.00	$14,863,640.00	$16,350,004.00	$17,985,004.40
Cost of Revenue	$7,639,000	$7,600,947	$8,361,042	$9,197,146	$10,116,861	$11,128,547
Operating Expense	$4,669,000	$4,435,550.00	$4,213,772.50	$5,056,527.00	$4,803,700.65	$4,563,515.62
Total Other Income/ Expenses Net	$15,000	$20,000	$20,000	$20,000	$20,000	$20,000
Total costs	$12,308,000	$12,036,497	$12,574,814	$14,253,673	$14,920,561	$15,692,062
Net Income	-$646,000	$247,502.77	$937,585.55	$609,966.85	$1,429,442.59	$2,292,941.94
Depreciation	$1,918,000	$0	$250,000	$250,000	$250,000	$250,000
EBIT	-$1,220,000	$267,503	$957,586	$629,967	$1,449,443	$2,312,942
EBITDA	$698,000	$267,503	$1,207,586	$879,967	$1,699,443	$2,562,942
Tax rate	0.00%	25.00%	25.00%	25.00%	25.00%	25.00%
EBITDA X (1 – Tax rate)	$698,000	$200,627	$905,689	$659,975	$1,274,582	$1,922,206
Capital Expenditure	$413,000	$500,000	$500,000	$1,000,000	$500,000	$500,000
Delta Net Working Capital	$0	$100,000	$100,000	$100,000	$100,000	$100,000
Free Cash Flow	$2,203,000	-$399,373	$555,689	-$190,025	$924,582	$1,572,206
Beta	1.59
Debt Financing Rate	4.80%
Equity Financing Rate	6.30%
Discount Rate	14.82%
Assumed Discount Rate	15.00%
Number of outstanding shares	524,159,844
EPS	$4.20
NPV@15% of FCF's Year 1 to Year 5	3,009,785
Terminal Value Estimates
Perpetual Growth at 2%	$12,093,895.83
Shareprice at time of Analysis	8.88
Current P/E using GAAP Diluted EPS	-22.03
Assumed PE of 12	$27,755,303.32
Assumed Terminal Value	$19,924,600
PV of Terminal Value	$22,934,384.62
Current Intrinsic Value Per Share	43.75
Projected EPS Per Share	$5.74

This predicts that the current intrinsic value of the share is $43.75 and long term projected shareprice could be in the same ball park or higher. Ofcourse, the big assumption in this calculation is that the revenue grows 10% each year. If I assume a 2% growth instead of a 10% growth, the stock price works around $10.50.

The next quarter will reveal the actual trend.