I remember the earliest days of BlackBerry Ltd (BBRY). At the time, I was working in Hollywood, and every agent had at least one. It was the greatest concept ever created for agents. They could call, text, get email — it made their highly time-sensitive jobs far more efficient. It wasn’t long before studio executives jumped on board, then producers and then craft service people.
I owned a pager.
BBRY was the rage for many years. Then, one day in 2007, the late Steve Jobs announced Apple Inc.‘s (AAPL) iPhone, and BBRY stock would never be the same.
By 2009, BBRY stock and sales had peaked, with BBRY owning about 20% of the market and selling some 15 million units per quarter.
The iPhone has relentlessly gobbled up market share since then, and BBRY stock has cratered. The product now controls a mere 3%.
The question on everyone’s mind is what kind of future BBRY stock has … if any. Most investors may just think of BBRY as the Android company. In truth, it has so many other elements that may be the key to its future.
The Future of BBRY Stock
BBRY stock and its future will largely depend on the company’s Enterprise Solutions and Services division. Blackberry is pushing itself as the place to go for security and reliability. It aims to focus on regulated industries, where security is not only important, but for which certain rigorous standards must be met.
For example, BlackBerry is the only mobile device management provider to obtain both “Authorization to Operate” and “Full Operational Capability” statuses with the Department of Defense. Landing big government contracts is huge for any company, but in regards to defense — where security is the cornerstone of everything — it is a big win.
BlackBerry has also touted its acquisitions of Good and Watchdox in order to “offer a unified, secure mobility platform with applications and services for any mobile device on any operating system — supported by security that has been certified by governments around the world, embedded in every component of the mobility infrastructure.”
It has also made numerous other acquisitions in this same arena to plow into the Enterprise Solutions market. It is also trying to push into another market, offering technology solutions for operating systems and middleware for automotive, medical, industrial, consumer, networking and defense.
These are competitive markets, to be sure. The question is to what extent BlackBerry will deliver, and what that means for BBRY stock. This is a turnaround situation.
Here’s what I like about BlackBerry stock: After backing out about $2.50 per share in net cash, BBRY stock sells for about $4.50 per share – down 97% from its all-time high. It still generates $225 million in free cash flow. Not bad.
On the downside, its revenues are cratering — down to $2.16 billion in fiscal year 2015 from $3.33 billion in FY14, and almost twice that the year before. So things are getting worse.
What does one do with BBRY stock?
If you think BBRY can successfully turnaround, you have three things going for you. The first is that it has $2.4 billion in cash. The second is that it has positive free cash flow. That means it has plenty of time for this turnaround to take hold. If you think it succeeds, then you are coming in at an effective price of $4.50.
However, you need to consider that marketing is an expensive proposition. In addition, the enterprise solutions field is extremely competitive.
Therefore, BBRY will have to convince people that it is the better company, and it is quite possible that the company achieves some success, but not enough to be reflected in the stock, and Blackberry just plods along for years as dead money.
There is a cost here in the form of opportunity cost — that is, what you could be earning elsewhere — so be aware.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he did not hold a position in any of the aforementioned securities. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
