BlackBerry Is Still Underrated on Wall Street

For a prominent company that's frequently in the news, BlackBerry (NASDAQ: BBRY  ) is one of the most misunderstood stocks in the market today. Too much attention focuses on the company's past missteps -- which allowed Apple (NASDAQ: AAPL  ) and Google (NASDAQ: GOOGL  ) to rapidly overtake it -- rather than BlackBerry's future prospects. Similarly, now that the new BB10 OS has come to market, too many people are focusing on the success or failure of the Z10 (BlackBerry's first BB10 device) rather than the ecosystem's overall potential.

To be "successful," the Z10 would need to sell perhaps 2 million units per quarter -- just a tiny fraction of Apple's iPhone sales or Samsung's Galaxy S series sales. However, even that level of sales is not necessary to justify a higher valuation for BlackBerry, because the Z10 is just a small part of BlackBerry's future. The much more important Q10 smartphone -- equipped with BlackBerry's signature QWERTY keyboard -- is just hitting the market now. Furthermore, BlackBerry CEO Thorsten Heins has already revealed that lower-cost BB10 smartphones will come to market later this year, probably in the fall. Extremely low market expectations and a strong product roadmap will most likely combine to generate strong returns for BlackBerry investors.

Cheap stock
The investment case for BlackBerry is straightforward. First -- and most obviously -- the stock trades for $15, which is below book value. In other words, the company is priced to never earn a profit in the future and eventually go bankrupt. This is a big change from 2011, when the stock peaked above $70, or 2008, when BlackBerry shares briefly traded for more than $140:

BBRY Chart

BlackBerry 10-Year Price Chart; data by YCharts

To put it another way, for the past year, investors have been able to buy BlackBerry stock at prices that had not been seen since the company was a small start-up.

Great product
Second, BlackBerry has a competitive product again. The BB10 operating system is great for multitasking and includes several unique features that may appeal to current iPhone or Android users. Many people already claim that iOS is getting stale and that Apple has lost its touch for innovation since Steve Jobs passed away. More recently, Samsung's Galaxy S4 has underwhelmed many reviewers, who see it as a great phone, but not a big improvement over the SIII.

In all likelihood, most iPhone users will stay within the iOS ecosystem, and most Android users will stay within Android going forward. But consumer desires for something "fresh" could drive a significant number of people to BlackBerry over the next couple of years. This may get BlackBerry to only 10% market share, but the smartphone market has grown tremendously since the original BlackBerry went out of fashion. Today, having 10% market share would involve having BlackBerry sell more phones than it did at the peak of its popularity.

Loyal user base
Lastly, BlackBerry has an extremely loyal high-end user base of 20 million to 30 million (as well as a larger group of less-profitable subscribers with low-end phones). These users will almost all upgrade this year, and most of them will continue to prefer QWERTY phones. (To put it another way, why would anybody in the U.S. still be using a BlackBerry today, unless they've been waiting to upgrade to the Q10?) This fact seems underappreciated among Wall Street analysts, and strong sales of the Q10 in the next few quarters will probably surprise most analysts and investors, driving the stock higher.

Risky, but not too risky
Like most technology stocks, BlackBerry is a fairly risky investment. Changing consumer tastes, high competition, software glitches, and the like all have the potential to negate BlackBerry's potential. That said, BlackBerry trades for less than book value, and the company is likely to be profitable this year because of high upgrade demand from existing users. These factors mitigate much of the risk in owning BlackBerry today.

Of course, it is possible that iPhone and Android users are already so locked in to their ecosystems that they won't consider switching even if they do get frustrated with their phones. It's also possible that Microsoft (NASDAQ: MSFT  ) and its partners will soon figure out how to build and market a Windows phone successfully, and thereby grab the third spot in the smartphone world. Nevertheless, BlackBerry has a small but loyal user base to build on, an innovative new OS, and a massive addressable market. This should be more than enough to make current shareholders very happy.

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Read/Post Comments (14) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 28, 2013, at 2:53 PM, Oldmonkey wrote:

    Looks like Berry has a great OS, and new product line. Provided secure Email is optional allowing BYOD businesses and customers working for them to use their products, it is likely Berry is on a roll. I still miss having a real keyboard for Emai, and would consider a Berry to replace my My Samsung. Only thing better would be a double sided phone in a hinged case

  • Report this Comment On April 28, 2013, at 3:06 PM, TIMNPAWC wrote:

    Are you suggesting there are any computer science / software engineers anywhere in the world that suggest IOS is, in 2013 a better OS than BB10? I mean engineers not working for Apple or Blackberry?

  • Report this Comment On April 28, 2013, at 5:21 PM, SyDVooh wrote:

    In order for BBRY to grow it needs international growth. That's not going to happen. Who needs a QWERTY phone in Russia, China or Japan, just for instance? They'll never get 5% of the market, let alone 10%.

  • Report this Comment On April 28, 2013, at 5:58 PM, RandomMeaning wrote:

    "To be "successful," the Z10 would need to sell perhaps 2 million units per quarter -- just a tiny fraction of Apple's iPhone sales or Samsung's Galaxy S series sales."

    To be "successful", all BlackBerry has to do is make a profit. That's all they need to do as a business. So, that part makes sense.

    "because the Z10 is just a small part of BlackBerry's future. The more important Q10 smartphone -- equipped with BlackBerry's signature QWERTY keyboard -- is just hitting the market now. "

    I'm not so sure that the Q10 is more important. Yes, it serves a niche which should prove to be profitable as long as BlackBerry controls their cost. But QWERTY keyboards are just that, a niche. If there were more demand for them, we'd see more Android models already trying to fill the void. The Z10 is supposed to be the mass market consumer device. It's just not selling all that well in spite of years of waiting for this new model. We should find out soon how well the Q10 does or doesn't sell.

    "Furthermore, BlackBerry CEO Thorsten Heins has already revealed that lower-cost BB10 smartphones will come to market later this year, probably in the fall."

    That's fine but it sounds like, "just keep waiting for our next try. That's going to be the one that turns things around." Lower cost, lower margins. Which pits them directly against even lower cost, lower margin Android phones. That's a battle I'd rather avoid. I'm not convinced that scrabbling for market share with a low cost phone helps BlackBerry. I think they're better off servicing a high end niche.

    "Extremely low market expectations and a strong product roadmap will most likely combine to generate strong returns for BlackBerry investors."

    This is just wishful thinking. You could make the same argument for Nokia. Or even Apple at this point. You can even say the same thing for just about any cell phone builder besides Samsung. Maybe it will work out but "most likely" actually seems far less likely.

    "Many people already claim that iOS is getting stale"

    The only people claiming this are ardent BlackBerry fans. Not even the Nokia fans have gone with that meme. Because it makes no objective sense since iOS has by far the highest satisfaction rating as recently as February. For the ninth quarter in a row. With increasing satisfaction.

    "and that Apple has lost its touch for innovation since Steve Jobs passed away"

    Another meme that has been going on during Jobs reign also. Which only works if you ignore the many innovations that have been occurring. Some incremental, some more dramatic. Granted nothing on the scale of the iPod, iPhone, and iPad since the iPad was released but it never seems to worry anyone that only Apple is held to this standard of having to create ground breaking leaps in existing technology to be considered "innovative".

    "Today, having 10% market share would involve having BlackBerry sell more phones than it did at the peak of its popularity."

    That's a pretty big leap in assumptions that BlackBerry is going to sell more than ever before. How about we worry about getting to positive growth first? Even Apple only aimed for 1% when they launched the iPhone. And I think the focus on market share could be damaging. Setting these uncertain goals simply sets BlackBerry up for failure.

    "Lastly, BlackBerry has an extremely loyal high-end user base of 20 million to 30 million (as well as a larger group of less-profitable subscribers with low-end phones). These users will almost all upgrade this year, and most of them will continue to prefer QWERTY phones."

    Your quoting yourself as evidence? You are making a whole bunch of assumptions based upon assumptions. Not the least of which is that all of these people are individuals making their own choices. How many are corporate users? How many of those corporations are going to upgrade their servers and phones to BlackBerry when their current service contract runs out? How many are switching to other alternatives? Just assuming they all roll over seems presumptuous and rose tinted. How do you know most of them want the Q10? Where is the data to support your assumptions?

    "To put it another way, why would anybody in the U.S. still be using a BlackBerry today, unless they've been waiting to upgrade to the Q10?"

    Answer: multi-year corporate contracts. Sure, there are loyal users who love their BlackBerry. And for their sake I truly hope BlackBerry finds a solid niche to serve these people and supply them with devices they love. But, BlackBerries are predominantly corporate devices. They just went mainstream for a while because they were about the only game in town for mobile email. Now there are many great choices, hence the decline as consumers bought up highly desirable consumer devices offering far broader functionality.

    Personally, I found this article disappointing. Too much of it read like a common BlackBerry fan comment which hyped the positives while shorting shifting the actual data.

  • Report this Comment On April 28, 2013, at 7:19 PM, TIMNPAWC wrote:

    "In order for BBRY to grow it needs international growth. That's not going to happen. Who needs a QWERTY phone in Russia, China or Japan, just for instance? They'll never get 5% of the market, let alone 10%."

    They have 6% of market now!!! do you think speed texters or emailers in Russia or China dont want best phone for texting or emailing? They will have 10% of market by next year!!!

  • Report this Comment On April 28, 2013, at 7:39 PM, TMFGemHunter wrote:

    @ RandomMeaning: I'm sorry you didn't like the article. I think that you have an unrealistic idea of the amount of "data" that is available. If there was enough data to draw a clear/obvious conclusion, there would be no point in "stock-picking" since everybody would know exactly what each stock is worth. The bearish analysts that I was critiquing in this article have equally little data to support their points: they believe that lock-in and network effects are too strong, the current BlackBerry base is too small, etc.

    At the end of the day, I'm making assumptions (as you said), which I think are reasonable. I'm sure they are not all 100% accurate. But BlackBerry trades below book value (and just above tangible asset value), meaning that the market is assuming that BlackBerry has no chance of success. My goal here was to explain why I think this is an overly pessimistic view based on the available evidence. You can obviously have your own opinion and your own reading of the evidence.

    Adam

  • Report this Comment On April 28, 2013, at 10:23 PM, RandomMeaning wrote:

    " I think that you have an unrealistic idea of the amount of "data" that is available."

    I, like most of the posters on Motely Fool and other places, only have the information which is publicly available. I read quite a lot in an effort to stay informed so I take in quite a lot of information and try to see the patterns they create. So, I do find it disappointing when people make statements which are clearly contrary to data which is readily available.

    I find it very disappointing that several major companies refuse to be transparent with basic elements of their data. I just don't see the advantage of keeping their investors in the dark. I know, they claim it's to keep their competitors in the dark but does anyone really believe that they aren't precisely aware of how each other is doing? No, it's the investors they want blind, dumb, and easily led.

    Or worse, give vague and/or misleading statements in order to score some kind of marketing bullet points. How much can you trust a company that doesn't trust you with the truth?

    Anyway, I'm not trying to shut you down. There's nothing wrong with a healthy discussion or supporting a company or several companies. In fact I welcome it. But in regards to BlackBerry, I have noted a trend to so over state their chances that I think it's getting into negative returns where anything less than a complete return to former glory is a failure. I don't think that helps the company. To me, finding a profitable and stable niche would be success.

    Thinking about it (and I'm not saying this is your personal goal), the only person who would gain from that kind of hype is someone trying to get a quick boost of the stock price to sell off their stake. Of course, that's pretty futile. Much fun as it is to comment, we should be under no illusion that we're moving markets here.

  • Report this Comment On April 28, 2013, at 11:36 PM, SyDVooh wrote:

    @TIMNPAWC: They didn't have 6% of the market before they released the Z10, and they've lost millions of customers in their last Q report? BBRY fans use fuzzy math.

    Also, you don't seem to be aware that the average Russian or Chinese person doesn't speak, read or write English, nor any other QWERTY, Roman alphabet based language.

  • Report this Comment On April 29, 2013, at 3:46 AM, rapag wrote:

    @SyDVooh

    Subscriber loss was expected lately, since BB7 clearly was, apart from QWERTY-fans, not competitive anymore.

    As the Z10 was selling in Q4/2012 only over one month in very few countries, BBRY could not counter- balance BB7 market-share decline in Q4/2012 with BB10-devices. However, in 2013 it is a different game.

    BB10 with BBRY-balance addresses very important security and privacy-concerns in the corporate and government arena. With its BYOD-tool BlackBerry in addition is going to enter a whole new BYOD-subscriber-market of iOS + google-android devices. This is going to be a completely new income-source.

    I used an Iphone 4 which I got from a former employer. Privately I was using google-android on a Sony Xperia before I switched to BBRY-Z10 (first BBRY-device). I would never go back, because, unless you want to waste a lot of time with games and other apps of mostly limited use, BB10 it is clearly much more comfortable and efficient to use in every respect, in particular in respect to e-mail, texting and internet use.

    I still cannot believe why BBRY is trading at current price-levels, respectively why over 160 million shares a sold short. To me it is a great buying opportunity. All of the 160 million shares HAVE TO be bought back sooner or later. I wouldn't sell below the intrinsic value, which Prem Watsa estimates at 40 to 50 $/share...

  • Report this Comment On April 29, 2013, at 4:44 AM, rapag wrote:

    Guardian, Apil 29th, 2013:

    "BlackBerry Q10 is 'fastest-selling ever' at Selfridges as corporates snap it up"

    even "despite lack of advertising around UK launch"

    see here: http://www.guardian.co.uk/technology/2013/apr/29/blackberry-...

    DOA? Hahaha....

  • Report this Comment On April 29, 2013, at 9:58 AM, Chippy55 wrote:

    Oh bah-ruther, more Blackberry bashing hidden amongst the article. Specifically the paragraph that says, "software glitches have the potential" to make BBRY a risky investment. Are you inferring that something like, say APPLE MAPS could be a bugaboo? Go Google APPLE MAPS and you'll see tons of examples of the most egregious map errors on the planet. Oh wait, you are explaining why AAPL stock fell from $703 to under $400 despite analysts lofty targets of first $1,111.11 and then a revision to $888.88 in a matter of a few weeks, but the primary reason is that AAPL is a pump and dump on steroids. It pays less than a 3% dividend and won't have any new products until either the 4th Q of 2013 or the Spring of 2014.

    ANY STOCK has the potential for anything. However CEO Thorsten Heins decided to make a new operating system from the ground up and Governments have decided that Blackberry is the most secure OS.

    At least on Seeking Alpha and other web sites the authors divulge in the first sentence whether they are long, short, or have no position. The Fool just keeps churning out wishy-washy suppositions every few hours, BBRY could do this, but watch out for that, this may happen, then again it may not. IMHO these people who constantly bash BBRY are AAPL longs who are lashing out, just like Liberals who had so much faith in Obama, have come to the stark realization that Conservative, Independents, Blue Dog Democrats and Libertarians are correct, but can't bring themselves to criticize Obama, or AAPL, and so they have to find some other way to vent their frustration. Example: Occupy porotesters, whom Obama, Pelosi, and Reid fully supported 110% and who illogically vented their confused mental state by blaming Wall Street for the Obama administration's shortcomings.

    Just calling a spade a spade.

  • Report this Comment On April 29, 2013, at 10:55 AM, BlackberryIsKing wrote:

    @InfoThatHelp: Bye Bye. You won't be missed. Here are the facts:

    Blackberry RULES.

    The Z10 and Q10 make the iToy look like a can with a string.

    Blackberry stock will hit $100 in a year or two.

    Apple stock will drop below $300 in a year.

    Long Blackberry!!!

    No more InfoThatNeedsHelp. Yahoo!!!!

  • Report this Comment On April 29, 2013, at 11:52 AM, SyDVooh wrote:

    @rapag: The losses were expected, because they knew BBRY users were switching when their contracts were up. BBRY didn't have 5% of the market just before they released the Z10. They don't have 5% now, and it's not going to happen any time soon. Selfridges sold a whopping 2000 units. Wow! Last quarter BBRY sold less than a million Z10s. AAPL sells a million iPhones in less than 3 days consistently. When AAPL releases new models of iPhone this year, sales will be off the charts.

    Maybe BBRY will survive, but it will never prosper, even with their "amazing" BB10, based on an OS for thermostats. The only investment that I can see here is a solid short position, which I am tempted to take, when I see such obvious shills, such as "BlackberryisKing," posting nonsense on every investment website.

  • Report this Comment On April 29, 2013, at 1:00 PM, rapag wrote:

    @SyDVooh,

    Yeah, sell BBRY stock short if you still find one lending you any. And have fun with you iPhone6.

    However, I prefer BBRY: both, devices and shares, since apple market-share as well as share price have reached point of culmination in 2012. Because now even my Grand-ma would have an iToy... Be careful!

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