BlackBerry Ltd (BBRY): Pros And Cons Of Investing In The Stock

Updated on

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) stock has lost more than 74% of its value in the last five years. The company has reported a loss in six of the last eight quarters. As Tom Taulli of InvestorPlace puts it, BlackBerry has failed on every count. But the appointment of John Chen has instilled some confidence in investors. The stock has gained more than 35% this year so far, suggesting that investors have begun to believe in its turnaround. But the reality is that BlackBerry hasn’t yet proved anything. So, let’s have a look at the pros and cons of investing in the stock.

Things that favor BlackBerry

1: John Chen

The new CEO of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) has an impressive resume. He knows how to create shareholder value. Chen has successfully led the turnaround of Sybase, and then sold it to SAP AG for $5.8 billion. Immediately after joining BlackBerry, he identified four key focus areas of the company, and reached a deal with Foxconn Technology Co., Ltd. to outsource the hardware development and manufacturing. BlackBerry will launch its first two smartphones made by Foxconn in April.

2: Patents and cash reserve

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) has a massive patent portfolio. The company holds about 7,000 patents. Intellectual property has become crucial in this fiercely competitive technology industry. The Waterloo-based company also has a cash reserve of close to $3.2 billion. BlackBerry can use that cash to invest in key businesses and fight back the competition.

3: BBM

BlackBerry Messenger has become the center of attention since Facebook Inc (NASDAQ:FB)’s $19 billion buyout of WhatsApp. Based on WhatsApp’s valuation, BBM should be worth somewhere close to $3.6 billion. Though BBM doesn’t have as many users as WhatsApp, it is considered more secure. Since BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) focuses on enterprise users, BBM has better monetization potential.

Three big enemies of BlackBerry

1: Cut-throat competition

The smartphone industry is dominated by Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) and Apple Inc. (NASDAQ:AAPL) at the high end. On the other hand, cheap Asian Android vendors are fighting for the low-end market. Microsoft Corporation (NASDAQ:MSFT)’s Windows Phone-based devices are gobbling up whatever is left. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s two new low-cost smartphones have to compete with low-cost Asian Android smartphones.

2: Market perception

Customers usually avoid buying products of a company that is under turmoil. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s woes might have created a skepticism among its enterprise clients as well retail customers. Large enterprises want security and reliability. They don’t want to take risks by going with a company that may shut its doors at any time. Winning the confidence of those customers back will be a big challenge for John Chen.

3: A difficult turnaround

We have seen rare comebacks in the tech industry. Of course, Apple Inc. (NASDAQ:AAPL) is a glowing exception. We have already seen what happened to companies like Palm, Motorola Mobility, and Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V). BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s declining revenues make the turnaround even more difficult, if not impossible.

Leave a Comment

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!