It’s safe to say that BlackBerry’s (BBRY) transition to a services and software company has been by all accounts a complete failure.
While there is still time for BBRY to right the ship, so much of what happens in BBRY’s software and services business is tied to its ecosystem, and the performance of hardware.
This is one of many reasons that the success of BlackBerry’s recently launched Priv is imperative for the future of both BBRY stock and its company.
Software & Services Not Working Out
This time last year, BlackBerry CEO John Chen was trying hard to sell investors on the prospects of software and services.
One service in particular, BBM, is a messaging platform that Chen thought could be the “next big thing” due to its enterprise-service focused approach. Chen even planned to combine BBM with mobile payments, and really thought it could be a blockbuster service for the company, aiming to have 100 million-plus active users by the end of last year.
Fast-forward a year, and BBM has not only underperformed, but Chen is shutting down essential services like BBM Meetings, which gave customers a mobile-first mobile conferencing solution.
Problem is that no one used it, much like other BBRY services and software.
Why the Priv Is Vital
With that said, the woes of services and software can not be considered growing pains, as the performance can’t even meet the most conservative of expectations. During BBRY’s last quarter, it posted software revenue of $74 million vs. a $100 million expectation and services revenue of $210 million was $17 million shy of expectations.
This all but illustrates why the success of hardware is crucial for BBRY stock moving forward.
Albeit, BBRY has repeatedly tried to make hardware work with new designs and continuous changes to its operating system. The problem is that its market share is too small, and app developers have left the operating system. That’s why the Priv is so important.
In other words, BBRY is no longer trying to steal Apple (AAPL) iPhone and Android users, but is now trying to compete for Android users against Samsung (SSNLF), Lenovo’s (LNVGY) Motorola and the Nexus, among others.
Seeing as how the Priv recently launched, no one really knows how it is performing. However, Chen did recently say that he expects BBRY to be profitable in 2016 behind the success of hardware, implying that Priv is in fact doing just fine.
Priv Could Be a Game Changer
That said, BBRY does not need to sell a ton of Priv phones to drive BBRY stock higher and generate big profits.
I recently explained that just three million units over the next year could create revenue of $1.8 billion and operating income of $450 million. Even with a multiple of 15, BBRY stock could very well surge 60% to 70% based solely on the performance of three million Priv’s sold, which hardly puts BBRY in the conversation as a top handset company.
Nevertheless, the fact that Chen and BBRY are already shutting down essential services for BBM, and the fact that services and software as segments have performed so badly, proves that neither are the future for the company.
Without success from the BlackBerry Priv, then investors might as well assume that BBRY stock will create new 52-week lows. In retrospect, the BlackBerry Priv was a last ditch effort to save a company that has tried anything and everything to get back on track.
Therefore, if the Priv works, get long BBRY stock. If sales for the Priv underwhelm, then sell or avoid BBRY stock. It’s really that easy, because beyond BlackBerry’s push with Google Play and the Priv, the company has nothing else to offer.
As of this writing, Brian Nichols is long BBRY.
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