In case you missed it, BlackBerry (BBRY) announced something of a watershed product last month in its first Android-powered device, the BlackBerry Priv.
The rational for the Priv is pretty straightforward. It gives you the convenience and app selection of an Android phone, but the security and familiar keyboard that long-time BlackBerry lovers expect.
What is less obvious, however, is why this product wasn’t launched five years ago, when it first become obvious that BlackBerry was losing ground to Apple (AAPL) and Alphabet (GOOGL, GOOG). Or at the very least, why BBRY didn’t launch something like this two years ago, instead of the costly failure that was BlackBerry 10.
Shoulda, woulda, coulda. BBRY’s management has been raked over the coals for past sins, and there is little reason to revisit them here. At any rate, I have a lot of respect for CEO John Chen. He’s kept the company alive for far longer than I believed possible. The question today is whether the BlackBerry Priv is significant enough to keep BBRY’s hardware business viable… or whether it is finally time to throw in the towel.
First, let’s look at the pros. BlackBerry’s ecosystem had ceased to be relevant years ago. If you were an app developer, you dedicated your time and resourced to iOS and Android. If you had any spare capacity, an app for Windows Phone might have been in the cards. But, BlackBerry was pretty low on the priority list.
Earlier in 2015, it became a lot easier to run Android apps on BlackBerry devices running BlackBerry 10.2.1 and later. But, it was still pretty cumbersome for non-technical users, and not all Android apps ran particularly well on BBRY devices. So, running Android really does make the BlackBerry Priv immeasurably more useful than the existing crop of BlackBerry devices.
Then there is security. For years, BlackBerry was able to hold on to lucrative contracts with the government and large enterprise markets due to its vastly superior security. Remember, the BlackBerry was a business device first, and only later became a consumer product. Conversely, the iPhone started out as a consumer product and eventually became a business device because, frankly, enough executives whined to their IT departments to find a way to make it work.
So, if you can get BlackBerry-caliber security with Android-caliber app selection, that’s a nice combo.
Now for the Reality Check
The defense and government market just isn’t that big. The entire federal government workforce — which includes the military — is only 4.1 million people. Most do not have government-issued phones, and most do not deal with classified material that would require enhanced security.
But for the sake of argument, let’s say they all do, and all are given BlackBerry devices. That’s not enough handsets to matter. Apple sold more than three times that many iPhones in just the three days following Oct. 9.
The value proposition gets even less convincing in the private sector. I run a money management practice, with all of the regulatory compliance issues that entails, and I certainly don’t need BlackBerry’s enhanced security. Rival handset makers have done a better job in recent years of prioritizing security and privacy. And, for crying out loud, MasterCard (MA) and Visa (V) consider my Samsung (SSNLF) Galaxy secure enough to use as a payment device.
So, it’s hard to see any of this mattering much to consumers, or to the vast majority of business and enterprise users. Reportedly priced at $630, the BlackBerry Priv is competing at the premium level with the iPhone and the Samsung Galaxy line.
Chen recently said in an interview that he’d like to see BlackBerry selling at least 5 million handsets per year, which is the approximate threshold for profitability. Any less than that, and the company is actually losing money on its hardware.
Five million might be an attainable goal. BBRY sold about 800,000 last quarter, so the Priv wouldn’t have to be a smashing success to push BBRY over the top. But if it falls short, Chen has indicated that BBRY might exit the hardware business altogether.
Is BlackBerry Stock Worth It Anymore?
With all of this said, is there any reason at all to consider BBRY stock?
Probably not.
Chen has done a fine job pulling BBRY away from the abyss. But, this is still a company that has seen revenue shrink for nine consecutive quarters. Revenues today are about one tenth their 2011 levels, and there is really no credible plan in place to boost them. BlackBerry is not in immediate risk of failure, but there is no compelling reason to buy BBRY stock.
Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog. As of this writing, he was long AAPL.
