Time To Consider Going Long BlackBerry
Oct. 9, 2015 9:48 AM ET | 31 comments | About: BlackBerry Ltd. (BBRY)
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
Not only is BlackBerry's decision to make an Android device a good idea, but if rumors about Priv's specs are confirmed, Priv will probably be a success.
Coupled with the Good acquisition, BlackBerry has expanded its corporate footprint by a lot, that will also give it a chance to sell more devices.
Even if Priv proves modestly successful, that should be enough to propel BlackBerry's stock to much higher levels .
Yes I think that BlackBerry (NASDAQ:BBRY) making an Android device is a very good idea. Not only because most of planet Earth uses devices with the Android OS, but also because BBRY has not been able to gain any traction with its own operating system.
Like I said in a previous post, If you can't beat them, join them. And while "joining them" might mean BBRY's OS has lost the battle, at the same time however it is probably the best option for shareholders in the long term.
Will a BlackBerry Android device succeed?
Yes, primarily because all BBRY has to do is to get a small piece of the Android market and it will make money. It will probably not make a whole lot of money in the beginning, but that's better than what it's doing now on the devices front, which is not much (if anything).
Will U.S. and European users embrace a BlackBerry Android device? I think so, especially at the corporate level.
To begin with, even today, when someone is shown to have a phone in his hand in some Hollywood movies and television shows, it is still a BlackBerry device. This shows that despite the fact that BlackBerry's U.S. market share is almost nonexistent, the BlackBerry brand still commands clout with the corporate crowd (and with Hollywood).
Above is a picture of character on the new Netflix sci-fi series Sense8 using a BlackBerry Q10 rather than telepathy to convey a message. In fact BlackBerry devices have recently guest stared in the following movies:
Netflix's House of Cards with Kevin Spacey and Robin Wright (which also helped lure iPhone users with our popular ringtone)
HBO's The Brink with Jack Black and Tim Robbins
FX's Justified with Timothy Olyphant
ABC's Last Man Standing with Tim Allen
Netflix's Orange Is The New Black with Taylor Schilling
Fox's Rosewood with Morris Chestnut
(more info here)
In addition, the recent acquisition of Good Technology gave BBRY an expanded corporate footprint. According to the press release, "Good serves more than 6,200 organizations, including more than half of the Fortune 100, all of the Fortune 100 commercial banks, aerospace and defense firms, and leaders across healthcare, manufacturing and retail".
My guess is that the BlackBerry Priv and the acquisition of Good was part of a well organized plan all along. BlackBerry will not only sell more software and services, but will also have the chance to sell devices to an expanded and different range of customers as well.
Another important thing to note is that about 64% of activations on Good come from iOS devices. That was an area where BBRY had issues with over the past years. I think now all those issues are resolved and customers will feel more comfortable with BBRY, since they are now officially platform independent.
However in my mind gaining corporate customers might not be enough for BBRY. BlackBerry's Android phone (and possibly other future android devices) need to become a hit with the mass public also. And that is easier said than done.
The main reason for this is that at the international level, Chinese device makers are making some very interesting and high quality devices for the money. So not only must BBRY make a high quality device, it must also make a device that can sell to the international consumer. And the reason why BBRY should put an emphasis on the international consumer, is because BBRY still carries a lot of weight in many overseas countries.
And from the looks of the unofficial specs of the new Priv device that will be coming out shortly, I think that for once BBRY got it right. Speculation has it that the Priv will carry at least the Qualcomm Snapdragon 808 chipset, Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android 5.1.1 Lollipop (possibly Android 6.0 Marshmallow), at least a 13-18 megapixel camera and a 5.5 inch curved screen.
Now if all the above are confirmed, I think the phone will sell in $500-$600 range and be characterized a high-end device (with the margins to match).
Coupled with the fact that the Priv will come with a slider to gain access to BlackBerry's QWERTY keyboard, and the fact that BlackBerry is known for making quality devices, BlackBerry has a very good chance to regain lost retail customers and a very good chance the device will be a hit with corporate customers.
So why should you buy the stock?
The above are all reasons why I think BlackBerry's Android Priv device will probably score well. And as I have been saying over the past several articles, in order for BBRY's stock to go higher, it needs device sales. Simply put - as the stock has shown over the last several quarters - software and services alone are not enough to propel the stock higher. And if the Priv is even slightly successful, that's exactly what will happen.
Another reason why I think BBRY's stock will gain over the next twelve months, is because at current levels it is cheap. The term "cheap" is relative and I use many methods to try to determine this.
First of all, one thing that I like and have reiterated over and over is the fact that no matter how bad you think BBRY is doing, its balance sheet is just fine. The reason I point to the balance sheet is because as long as it's fine, it means the company has the ammunition to fight another day. And to be honest, the Priv move surprised me on the positive side for once.
BlackBerry's Q2 report revealed $100 million in positive free cash flow for the quarter, and a sequential increase of cash by $37 million over the previous quarter. In addition, the company still has about $3.35 billion in liquid assets on the books, that is more than enough for it to weather a storm.
Second, when we take a look at Blackberry's valuation in terms of revenue, we will see that it's trading at about 1.7 times next year's revenue. While this is not that cheap anymore (as it was 1-2 years ago), it will seem very cheap if Priv is even slightly successful, as I think it will be.
Finally, I personally think the market will speculate with BBRY shares no matter what the outcome. The market usually tries to discount something that on the surface might be positive, even if in the end things flop. So while we will not know for several quarters if Priv is successful or not, I think the stock will try to discount such an outcome, even if it proves not to be the case in the end.
Bottom line
I think BBRY is onto something this time around with Priv and the Good acquisition. And while I like the company's strategy with software and services, in the end it will be a device comeback that will make a big difference for BBRY's stock.
Time will tell if I am right, but since the balance sheet of the company is in perfect health - and Priv seems like a great device this time around - even the slightest success should propel the stock a lot higher.
I do not have any targets for the stock, but I think it's not difficult for the stock to reach $12 a share if Priv is modestly successful.
