Caution: BlackBerry Will Acquire Companies to Hit Sales Targets

Morgan Stanley analysts are out with a warning on BlackBerry Ltd BBRY: the company is "acquiring revenue to make software revenue targets." The company, Morgan Stanley said, is comfortable taking its cash balance down $700 million, to $2.5 billion, in order to acquire companies that help it hit its top-line software revenue goal of $600 million. Against this backdrop, Morgan Stanley said it remains Underweight with a $7 price target – roughly 30 percent below Tuesday's closing price.

Yesterday, BlackBerry announced it would acquire WatchDox, a secure file sync and sharing platform, for around $70 million – well less than initial reports of $150 million. Ultimately, Morgan Stanley said, WatchDox will be incorporated into BlackBerry's BES 12 EMM solution, though the product will continue to be sold separately for the time being.

Morgan Stanley estimated that, even with this acquisition, BlackBerry will need to acquire another $120 million in revenue to meet its $600 million target. In order for the stock to stay in the $10 range, Morgan Stanley said that the company would need to make these acquisitions at "significantly less than 2x revenue, something they are unlikely to be able to accomplish." That means that the impending acquisitions will be at "dilutive multiples."

Year-to-date, BlackBerry shares have shrunk 8.6 percent. In the prior year, however, the stock has gained more than 40 percent. Shares in the premarket are down marginally, last changing hands at $9.97.