BlackBerry Ltd: WhatsApp Valuation Puts BBM Front And Center

Blackberryuser1462590383 / Pixabay

RBC Capital Markets analysts Mark Sue and Ameet Prabhu (Associate) take a close look at BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) in light of Facebook Inc (NASDAQ:FB)’s WhatsApp acquisition and what it could mean for the struggling smartphone company.

BlackBerry’s BBM potential

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is extending BBM to Windows Phone, Nokia X and other platforms as it works to build on the base of its existing 85M BBM users. BBM can be the biggest value growth component, in our view. In comparison, the recently acquired WhatsApp has grown to 465M users, while LINE has ~350M users and WeChat has 270M subs. Given BBM’s ties with BES, BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) believes BBM has great potential, yet acknowledging it’s still early days. It’s the only “secure” messaging platform with investors likely to reassess the value of this sub-base. Rate of growth and user demographics varies by messaging platform, which can assign different values per messaging assets. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) introduced eBBM, offering enterprise-class messaging features.

New solutions, phones; working towards cash break-even

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) introduced new enterprise solutions (BES 12, EZ Pass, eBBM), while unveiling new smartphones (Z3, Q20). BES 12 will be available by CY14-end with EZ Pass offering a free migration path to BES10. These are all previously planned launches, which will help stabilize the traditional business. Foxconn Technology Co., Ltd. (TPE:2354) appears enthusiastic about the deal, all of which can help BlackBerry focus on stabilizing and growing other assets. The Z3 (available April) is an all-touch smartphone developed in partnership with Foxconn, while Q20 is (2H14) a classic QWERTY phone.

F5 sounding confident in ADC, Traffix, Security

F5 believes it’s well positioned to benefit from growth in core ADC, while also focusing on expansion into market adjacencies. In ADCs, F5 highlighted its winrate in ACE replacements remains high and it’s winning deals vs. competition, albeit acknowledging Citrix may be winning in some VDI deals, as well as when bundling traffic steering with its virtualization solutions. In Security, F5 is not yet seeing a competitive pushback from network security incumbents and continues to focus on R&D, which F5 believes should help drive share gains.

F5 pushing into $1B DDoS market

DDoS protection market is a $1B opportunity and F5 indicated its solutions are well placed vs. competition. In diameter routing, F5 highlighted its Traffix solution has made wins against incumbents (Tekelec: part of Oracle) in key North American tier-1 accounts and is making progress in tier-2/tier-3 opportunities.

Something new in security, still too early for reversal

Juniper Networks, Inc. (NYSE:JNPR) highlighted its anti-malware service for SRX services gateways, Argon Secure, which it believes can identify malware typically not detected by traditional solutions. Argon Secure is expected to be available in 3Q14 as a subscription for SRX gateways. F5 has its own secure web gateway for anti-malware solutions, while Cisco Systems, Inc. (NASDAQ:CSCO) is now integrating its SourceFire malware protection solutions into its security portfolio. Juniper and Cisco have traditionally been market share donors in security, so we’re watching for any reversals with these new products.

Microsoft highly committed to mobile, but didn’t relay different strategy

Microsoft Corporation (NASDAQ:MSFT) remains focused on improving Windows 8 OS smartphone market share and reiterated its commitment to mobile, notwithstanding some of the recent management changes. The company highlighted it’s working on reducing fixed costs for smartphone OEM vendors related to IPR payments and believes OEM licensing payable to Microsoft Corporation (NASDAQ:MSFT) for Android-based vendors would be similar if OEMs shift to Windows 8 OS. Microsoft Corporation (NASDAQ:MSFT) is working with Qualcomm on reference designs for the high-volume tier. Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s D&S business (pending sale) has announced 5 new handsets, including three Android-based Nokia X handsets focused on the low end as well as emerging markets.

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3 Comments on "BlackBerry Ltd: WhatsApp Valuation Puts BBM Front And Center"

  1. All platforms have access to encryption solutions. How can you think that only Blackberry would have access to the ultimate security solutions?

  2. Because their cultures don’t mesh at all. Facebook would’ve lost all respect in BES as people don’t trust the company is secure. The handset division would’ve turned into a second coming of facebooks poorly received Facebook Home, and then that just leaves BBM. Which has most of it’s users because they value the encryption that Blackberry offers and anonymity of not hanging to sync with the phone contacts.

  3. The Facebook acquisition of Whatsapps lessened BBM value greatly. If it would have been thought that BBM was better, then why didn’t Facebook buy it at a fraction of the cost when the entire BlackBerry infrastructure could have been included in the deal? Last year Facebook could have bought all of BlackBerry that would have included BBM, BBE and handset division for $4.7B.

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