Is BlackBerry Messenger Worth Something?

Since former Sybase chief John Chen took over for Thorsten Heins as CEO of BlackBerry Limited (NASDAQ: BBRY  ) in early November, shares of the fallen tech giant have stabilized in the high-single digit range.

BBRY Chart

BlackBerry 1 Year Stock Chart, data by YCharts

Chen has reorganized the company around 4 different business lines. These are 1) devices; 2) enterprise software and services; 3) QNX machine-to-machine technology; and 4) BlackBerry Messenger. Right now, the device business makes up the largest piece of BlackBerry's revenue, but this is arguably the least promising business unit in terms of growth opportunities.

BlackBerry's device business is its biggest revenue generator, but has the worst long-term prospects

However, each of the other three could potentially be valuable growth businesses with the right strategy and good execution. Today, I'm going to zero in on the BlackBerry Messenger business, since social media companies have been in vogue with investors recently. Could BBM create significant value for BlackBerry investors?

A growing platform
Last year, BlackBerry made the controversial decision to open up BBM to iOS and Android by releasing it as a free app for those platforms. In the first two months of availability, more than 40 million iOS and Android users registered BBM accounts. This nearly doubled the global BBM user base!

On the company's most recent earnings call, BlackBerry CEO Chen asserted that BBM still has very high user engagement. The service has 80 million active users on a monthly basis, with 60% of those using BBM daily for an average of around 90 minutes.

Last week, BlackBerry rolled out a new version of BBM with a few important new features, such as free VOIP calls to BBM contacts for iOS and Android users, and Dropbox integration. New features like these should help BlackBerry continue attracting new users from the iOS and Android platforms.

Building a real business
While adding new users and driving strong engagement are both critical to the success of any social media platform, in the end you need to be able to monetize that user base. Monetization of the BBM service is still very much a work in progress. Advertising is the most obvious possibility; for example, BlackBerry could charge companies for setting up BBM Channels to interact with their customers.

BlackBerry's success (or lack thereof) in converting its large user base into a revenue stream will ultimately determine how valuable BBM is. However, the valuations of other messaging and social media firms suggest that BBM could be worth quite a lot.

Just last week, messaging app Viber -- which has about 300 million registered users -- was acquired for $900 million. Viber's user base is strongly concentrated in developing countries, meaning that it may be worth significantly less on a per-user basis than BBM. Viber did not generate any revenue until last year, and its annual revenue is probably still a nominal amount.

Meanwhile, Twitter (NYSE: TWTR  ) has a market cap of more than $20 billion, even though it has yet to earn a profit. Its high valuation can be attributed to its large user base -- it had 241 million average monthly active users as of the end of 2013 -- and its rapid growth. Twitter's revenue more than doubled in 2013, while its active user base grew 30% year-over-year.

By contrast, all of BlackBerry is worth just $5 billion today. Even with its smaller user base, BBM's growth and its high user engagement statistics could make BBM worth more than $1 billion -- potentially much more -- if BlackBerry finds a good way to monetize the service. That would represent a significant portion of BlackBerry's total value.

Foolish bottom line
Due to the lack of a real revenue source within BlackBerry Messenger, BBM's value is purely speculative today. However, BlackBerry CEO John Chen is committed to building out the BBM service, and this means that it will remain a long-term growth opportunity. Other social media platforms have been valued at hundreds of millions or even billions of dollars, despite having similarly underdeveloped business plans.

With BBM standing as just one of several potential growth businesses for BlackBerry, the main thing holding the company back is its ongoing losses from the device business. If BlackBerry can rein in those losses during its upcoming fiscal year, the stock could continue its rebound.

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Read/Post Comments (4) | Recommend This Article (1)

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 February 19, 2014, at 5:01 PM, cbglobal wrote:

    You ask a yes or no question; then take 1000 words to say yes or no. What did you say exactly?

  • Report this Comment On February 19, 2014, at 5:17 PM, chrispycrunch wrote:

    Facebook paid 16bn for WhatsApp. That just increased the value of BBM by a substantial amount. Fortunately, Mr. Market will assign a zero value to BBM, which discounts BBRY shares.

  • Report this Comment On February 19, 2014, at 5:17 PM, melegross wrote:

    Sheesh! Another article about nothing. If, if, if. That's all we can say about Blackberry. If they can monetize BBM it will be good. If low price handsets designed and made by hon Hai sell. If BB10 BES does well.

    A lot of ifs, but nothing of importance. All we know for real is that Blackberry sales are in the toilet, dropping by almost half every quarter. Handsets were most of their business. Now, it appears that software is more important, but only because of the vast drop in hardware sales.

    I have to note that the glee first shown upon mentioning that 40 million Android and iOS users downloaded BBM a while ago, doesn't seem to have increased, as Blackberry is saying that there are 80 million active users. That's the same as it was months ago. That doesn't bode well for it, despite all the hype from Blackberry and writers such as this one.

  • Report this Comment On February 19, 2014, at 7:31 PM, TMFGemHunter wrote:

    @melegross: I don't know where you got your user data. I haven't seen any update since the last earnings report in December.

    If you're not willing to deal with a whole lot of "ifs", then you shouldn't consider investing in BlackBerry, long or short. Anybody who's telling you they "know" something about BlackBerry's future prospects is probably fooling you or fooling themselves. The company has totally upended its business model in the last three months, and there are far more questions than answers at this point.

    My only purpose in this article was to look at what other messaging/social media firms are worth today. That says something about what BBM could be worth if BlackBerry can find the right monetization strategy. The Facebook-WhatsApp deal today provides further support for the idea that BBM could be quite valuable relative to BlackBerry's current market cap.

    Now, it all comes down to whether or not you believe in the new management team.

    Adam

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