For BlackBerry (BBRY), the last few years have been a nightmare. During this period, BBRY stock has lost billions in market value, and it looked as if the company’s survival was in doubt.
Keep in mind that it has announced losses during six of the last eight quarters, and revenues have collapsed. BBRY has failed on just about every count, especially with its product. In recent years, the company just can’t seem to create a phone that people want!
But Wall Street can be a funny place — and BBRY stock has shot up about 42% this year.
So what to make of this? Is a turnaround real? Or should investors be cautious? To see, let’s take a look at the pros and cons for BBRY stock:
BBRY Stock Pros
John Chen: Chen came on board as the CEO of BBRY late last year. No doubt, he has an impressive resume. For example, he led the turnaround of Sybase and sold it to SAP (SAP) for $5.8 billion. And he has wasted little time trying to give BBRY stock a boost. First, he reorganized BlackBerry’s divisions with a focus on the enterprise market to help with product development and sales effectiveness. But perhaps the most important move has been to outsource hardware development to Foxconn. With the deal, BBRY can focus on software while Foxconn can leverage its scale and supply-chain efficiencies. By April, BBRY will launch two new phones that are based on Foxconn development.
BBM: This is BBRY’s messaging app. In light of Facebook’s (FB) $19 billion acquisition of WhatsApp, Wall Street has certainly gotten excited about the space. There was also Rakuten’s $900 million purchase of Viber, which is another hot messaging service. So might BBM be the crown jewel? Granted, it is still relatively small, at 85 million active users (WhatsApp has more than 460 million). But then again, the engagement is high — 60% of the users use the app on a daily basis — and there are enterprise-quality features like security. Because BBM’s users are likely to be focused on business, there may be lots of potential to monetize the asset.
Patents and cash: BBRY has no shortage of either. As for the patent portfolio, there are more than 7,500 issued or pending. In today’s highly competitive mobile industry, these have become valuable assets. Just look at the aggressive purchases of patents from companies like Google (GOOG), Apple (AAPL) and Microsoft (MSFT). But BBRY also has a strong cash hoard at $3.2 billion. This will provide a nice cushion for the BBRY stock turnaround, while also providing resources to invest in BBM and other businesses.
BBRY Stock Cons
Competition: Competition is incredibly intense as BBRY stock must fight against massive players like Samsung (SSNLF) and Apple. Those companies have tremendous resources as well as sterling brands, top-notch products and massive ecosystems. Then there is the wildcard: Microsoft. While MSFT has fumbled with mobile, the company continues to invest heavily in the business, as seen with the recent purchase of Nokia (NOK).
Perception: Whenever there is turmoil for a company, customers tend to hold back on purchases. And yes, this has been happening with BBRY stock. Let’s face it, BlackBerry has had its share of drama. The perception issue is particularly worrisome for companies that sell to the enterprise. These types of customers want reliability and security. In the case of BBRY, winning back confidence will be a huge challenge. The company must deal with major competitors while in the midst of a wrenching turnaround. Besides, it doesn’t help that BlackBerry’s product launches have been mostly lackluster.
Turnaround. The history of corporate comebacks doesn’t inspire optimism. It seems things are even tougher in the mobile space. Consider what happened with companies like Motorola, Nokia and Palm. For BBRY stock, the situation may even be worse because of the plunge in its business. During the last nine months of 2013, revenues fell from $8.4 billion to $5.8 billion and the net lost climb from $744 million to $5.5 billion.
BBRY Stock Verdict
Chen’s turnaround plan is still in the early innings. So expect lots of bumps along the way.
However, he has made some great moves, such as with the Foxconn deal. And that shouldn’t come as a surprise. He has a standout track record getting tech companies back into gear. He also knows how to get value for shareholders, as he did with Sybase.
In fact, it’s probably likely that Chen’s goal is to find a buyer. And by revamping the product, he has a real chance. Even if there aren’t any U.S. companies that want to buy BlackBerry, it’s not outside the realm of possibility that an Asian operator might want to get its hands on BlackBerry’s patents and messaging service.
So should you buy BBRY stock? Yes, if you want to bet on a turnaround play, there could be more room on the upside. Just be ready for a bumpy road along the way.
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.