Halloween might be over, but BlackBerry Ltd (BBRY) is giving Wall Street plenty of reason to talk about zombies.
BBRY stock is selling off on Wednesday, losing more than 5% after Morgan Stanley (MS) downgraded the mobile phone and software company to “underweight” from “equal-weight.” The investment bank gave BBRY stock a $7 price target.
In other words, MS thinks BlackBerry shares needed to take a 35% haircut from yesterday’s closing price before the stock is trading at a fair value.
Morgan Stanley thinks BlackBerry’s management is being too optimistic, and that the company “will be unable to gain relevancy in the enterprise mobile management (EMM) software market and will continue to lose enterprise subscribers.”
That’s a powerful indictment, especially considering the fact that BlackBerry CEO John Chen has been scrambling to reposition the company as a business-facing software company with a focus on things like messaging and mobile security.
Encouraged by a new-look BlackBerry Passport focusing on functionality over aesthetics, Chen’s strategy seems to be giving investors a renewed sense of hope, as BBRY stock is up more than 35% this year.
BlackBerry is still very much alive.
But considering the fact that BlackBerry has no future in hardware and no one on Wall Street is too confident in the company’s ability to build a sustainable business in EMM, you could make a compelling argument that BBRY is also in the early phases of a slow death spiral.
BlackBerry Stock — Wall Street’s Living Dead
While not everyone agrees with the company’s zombie diagnosis, Apple Inc. (AAPL) and Google Inc (GOOG) have already eaten BBRY’s lunch in hardware. With a market share that fell from 20% at its peak to less than 1% in recent quarters, it’s foolish to argue otherwise. Numbers don’t lie.
So by process of elimination, BBRY’s software and enterprise efforts are the only remaining bullish thesis for BBRY stock. One would think developing a secure mobile messaging platform would hold some major value and potentially offer a compelling reason for a BBRY M&A play.
But this is the modern age of mergers and acquisitions: an age where Silicon Valley companies are anxious to shell out billions for messaging platforms — but only if they’re strictly social, or if they let you to send regrettable self-destructing images and videos to friends.
WhatsApp is a fine example of the former, and was acquired by Facebook (FB), presumably in a fit of irrational mania at the time of the purchase, for an adjusted $22 billion in February. Most of Snapchat’s assets are “intangible,” and last quarter Facebook said WhatsApp’s biggest asset was its “goodwill” — it has about $15.3 billion worth of that.
Similarly, Snapchat was able to command a $10 billion valuation back in August without a penny in sales to its name.
BlackBerry, on the other hand, saw a $4.7 billion buyout offer fall apart last year. No one believes in or cares about BBRY’s new look. So, BBRY stock doesn’t have a choice. It’s time to nut up or shut up. And numbers don’t lie, so BlackBerry will need to reverse its multiyear sales skid soon if it wants to disavow its zombie-esque ways.
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As of this writing John Divine is long AAPL stock, GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid.