Hardware is dead. Long live software and services.
BlackBerry Stock Weaning Itself Off Hardware
The tech industry is full of examples of turnaround failures, but BBRY continues to show that it might have what it takes.
Three decades of experience working with enterprises and governments certainly helps. So do BlackBerry’s deep relationships with 665 mobile carriers across more than 175 countries.
But at the core of the company — and still a key potential driver for BlackBerry stock — is the enterprise platform.
The key will be to capitalize on the emerging market of mobile device management (MDM). To this end, BBRY has BES 12, which allows companies to securely monitor devices from Apple (AAPL), Google’s (GOOG) Android, Microsoft (MSFT) Windows Phone and yes, BBRY. Some of the features include controlled access to content, calendars and email support. Meanwhile, BES 12 is integrated with entrenched corporate software systems from Microsoft and IBM (IBM).
Wall Street is already taking note of the potential of the MDM space. Just take a look at this week’s IPO from MobileIron (MOBL) — the company’s stock rose about 22% on its first day of trading. And back in January, VMware (VMW) shelled out $1.5 billion for AirWatch.
The MDM opportunity is in its early stages, and explosive growth is the name of the game. According to the MobileIron S-1, the mobile IT market is expected to go from $27 billion in 2014 to $49 billion by 2017. During this period, the number of business-use smartphones will ramp from 280 million to 480 million.
But BlackBerry stock may be a great way to play this megatrend. Keep in mind that the company’s platform is more than just MDM. There is the BBM service, which allows for chat, voice and video communications. The technology, which has 85 users, is built specifically to comply with regulated industries. In fact, BBM can be poised for a jump in growth because it has been opened up for iOS and Android devices.
BBRY also has QNX, which is an operating system for non-smartphone devices. Over the years, the company has built a thriving business with autos. Yet QNX has tremendous potential, especially with the emergence of the “Internet of Things.”
EnStream Enters the Equation
Finally, as seen with the recent deal with EnStream, BBRY has a mobile payments technology as well. It allows for secure storage of card information on smartphones for carriers Bell, Rogers and TELUS. With the BBRY platform, these companies will be able to make transactions among banks and consumers – using near field communications. It certainly helps that the company complies with the stringent requirements of PCI regulations as well as certifications from Visa (V) and MasterCard (MA).
Even though the arrangement with EnStream is a bit nichy, it could pave the way for more deals. According to Gartner, the total value of transactions on mobile devices is expected to grow from $35 billion in 2012 to a whopping $173 billion by 2017. That’s a compound annual growth rate of 31%.
Despite how great that all sounds, Wall Street isn’t paying much attention, as seen with the muted valuation. After subtracting the $2.5 billion in the bank, the company’s market value is only at $1.6 billion.
Now it’s true that BBRY has a history of disappointing investors, which likely explains the depressed stock value. But the company now has a top-notch CEO, John Chen. In his prior stint at Sybase, he took a company from near-death to a sale for $5.8 billion. And the critical part that revival was his strategy to transition the business to mobile.
No doubt, BlackBerry stock still has risks, such as with the competition in the MDM market and the likely continued erosion of the hardware business. But there are definitely many reasons to be optimistic. And if Chen can pull off another turnaround, there could be some big rewards for shareholders.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.