Blackberry Ltd (BBRY) Gets ‘Sell’ Amid Apple Inc., Google Competition

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BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) announced recently that it is seeking strategic alternatives. The company is open to considering joint ventures, partnerships, and an outright acquisition of the entire company.

Tim Long, an analyst at BMO Capital Markets, believes that the value of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) will not increase significantly even if it explores strategic alternatives, but he opined that a change in the company’s structure will result in a higher stock price in the near-term.

In a recent report by Citi, analysts note they have a Sell rating on BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) due to the Bring Your Own Device (BYOD) trend, which allows employees to bring any smartphone to access corporate email. Furthermore they see competition intensifying by Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930), HTC Corp (TPE:2498), Google Inc (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL) and others and Blackberry Ltd (NASDAQ:BBRY) (TSE:BB) has not been keeping up with innovation.

Blackberry Ltd (BBRY) Gets 'Sell' Amid Apple Inc., Google Competition

Blackberry’s new products

According to the report, BlackBerry’s new products are not gaining meaningful adoption and net subscribers to the BlackBerry services are leaving the BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) network and Citi analysts expect this negative trend to accelerate.

Analysts believe BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) will lower its product pricing in 2H 2013 as competition from Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930), HTC Corp (TPE:2498), Google Inc (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL) and others intensifies and the new Blackberry Z10 and Q10 products are not selling as well as hoped. This will create additional pressure on average selling prices which will pressure margins, profitability and EPS. We continue to model EPS materially below consensus.

Potential pushback is primarily from those who believe BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is either 1) an acquisition target or 2) likely to break the company up into software versus hardware. Each of these is based on the fact that Blackberry does have a lot of intellectual property patents. Analysts from Citi note that it is very difficult to accurately value IP as such value is unique to each company’s competitive positioning and recently several patents have been shared across companies such as Google Inc (NASDAQ:GOOG) allowing all Android ecosystem partners to be patent protected via the Motorola patents, as well as Nortel selling its patents to a consortium of several handset companies. This trend dilutes the value of handset patents in analysts’ view.

BlackBerry’s valuation

Citi’s target price for BlackBerry Ltd (NASDAQ:BBRY) of $9.00 (rounded) is based on 1x F12M tangible book value per share which is in inline with the median trading range over the 2- year period. The firm does not project positive EPS for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) and expects negative EPS to degrade to larger losses in the quarters ahead.

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