Sorry BlackBerry, BBM Will Never Be Worth $19 Billion

When Facebook (NASDAQ: FB  ) said last week it would acquire WhatsApp for $19 billion, the tech world erupted with all kinds of words ending in "ment" -- excitement, wonderment, disagreement, and, perhaps most common, bewilderment.

After all, folks wondered, how could Facebook possibly assign a $19 billion price tag to a mobile messaging app that shuns advertising?

But before we get to that, the move also begs another important question: What could other up-and-coming mobile messaging platforms be worth?

Enter BBM
That's a question BlackBerry (NASDAQ: BBRY  )  shareholders have asked since the beleaguered smartphone maker revealed plans to bring BBM to iOS and Android last summer. It was unsurprising, then, when shares of BlackBerry rallied on the news.

Equally unsurprising was the reaction  from BlackBerry CEO John Chen who, with a knowing chuckle on CNBC, insisted that "if someone came to me with $19 billion, I would would definitely sell" BBM.

Well, duh. We all knew BlackBerry's mobile messaging platform wasn't worth $19 billion. Heck, it's apparent from the interview even Chen isn't convinced WhatsApp merits the lofty price Facebook paid.

But given BlackBerry's comparatively tiny $5.5 billion market cap, BBM doesn't need to be worth $19 billion to create shareholder value, right?

To be sure, despite technical problems marring BBM's initial September launch, the app's rerelease on Oct. 22 was widely considered an immediate success as it added more than 20 million new users in its first week. At the time, BlackBerry lauded BBM's monthly active user base of more than 80 million. 

By the time BlackBerry reported results for its fiscal third quarter ended Nov. 30, the company said BBM's new Android/iOS users had risen to 40 million.

BBM still isn't worth $5 per share
I found it curious, however, when Chen elaborated during the subsequent conference call that BBM still had 80 million active monthly users. The CEO did say an impressive 60% of that total is active on a daily basis, but it still indicates the initial rush of new BBM downloads has not only slowed, but also is not converting at a meaningful clip to active long-term users.

So where does that leave BBM?

You might recall last September, when ScotiaBank analyst Gus Papageorgiou raised eyebrows by claiming BBM could eventually be worth as much as $5 per share, or just more than $2.6 billion. However, that assumption was based on the premise that BBM would be able to more than quadruple its then-60 million active monthly user base to 250 million -- roughly the same number WhatsApp enjoyed at the time.

I wasn't convinced then, especially when we remember that BlackBerry could no longer rely on data fees to monetize BBM. Instead, it seemed clear BlackBerry execs would eventually turn to advertising as BBM's primary source of revenue.

However, I'll admit BlackBerry threw a small wrench in that argument Tuesday with the announcement of its eBBM suite, an enterprise-centric version designed to monetize BlackBerry's bread-and-butter clientele.

According to John Sims, BlackBerry's head of enterprise and BBM, "Of the 85 million users, one of the things we observed is that 25 million of those users are actually in the enterprise space."

So what's the problem? First, it seems Sims just inadvertently revealed that BBM's user base has added just 5 million new accounts since late December. Second, you can bet not all of BlackBerry's 25 million-strong enterprise group is willing to pay extra for BBM Protected, the first product in the eBBM suite designed to provide end-to-end secure chat. At its very best, enterprise monetization of BBM appears to be an incremental, finite opportunity.

WhatsApp has no equal
Meanwhile, WhatsApp has grown by leaps and bounds based not only on its ability to cater to consumers in emerging markets, but also its longstanding stance against selling ads -- both of which Facebook CEO Mark Zuckerberg made clear he doesn't intend to change: "By being part of Facebook, they can focus purely on connecting more people, [instead of] focusing on building its business model."

That's not to say WhatsApp has struggled to do both already; it has an affordable annual subscription model in place, and last week Facebook told investors WhatsApp had more than 450 million people using its service each month, with 70% active on a daily basis. Even more impressive, WhatsApp is still adding more than 1 million new registered users every day, lending credence to Zuckerberg's stance that the platform could eventually connect "1, 2, 3 billion people."

While all the Type-A, near-term-thinking analysts are finding it difficult to justify the $19 billion purchase price, this amazing network effect is precisely why the social media giant was willing to fork out $42 per user to bring WhatsApp under its enormous wing.

Over the long run, that's something BBM -- and any other mobile messaging platform, for that matter -- simply doesn't bring to the table.

This is one enormous table
By betting on WhatsApp, Facebook has found a way to further its own agenda of connecting billions of people through the Internet. But that doesn't mean Facebook is the only great play in this burgeoning industry. So where else might you look?t

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Read/Post Comments (10) | Recommend This Article (2)

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 March 02, 2014, at 1:06 PM, i7up2001 wrote:

    As I posted 2 days ago on an other article from you guys ,here are a few things you should consider.One little detail you forget to mention, Whatsapp is out since 2009 across platform, and until later last fall 4-5 months ago BBM was only available on Blackberry phones, 2 weeks ago BBM4all was updated with free voice call, and later this year IOS Androids and WP should have features already available on Blackberry phones, that includes Video Call and Screen sharing, Whatsapp announce this week that they should have voice call before the end of the year.So it took 5 years for Whatsapp to get to 450m BBM4all is 5 months in, with more feature and better security.and at this point probably over 100M users, if each of them get 3 friends to join the better feature and secure messaging platform it can get to 400MM pretty fast. Like you said BBM doesn't need to be worth 19B,to increase the current MC. The company as many business, BBM, eBBM, BES network,QNX car,Certicom,Patatek, a 5 years hardware partnership with Foxconn,that will launch a 5" phone under $200 un-subsidized for emerging market.That compares to over $700 for an Iphone 5c.So Blackberry currently as a MC of 5.18B, around ~2B in cash (w/o debenture), 500mm to 1B in real-estate,500mm currently for sale,5.18B-2B-1B=2.18B, IMO BBM eBBM BES, QNX,Certicom,Patatek and all their patent relating to Software and hardware are worth much more than 2.18B, Just BBM on it's own can be worth more...

  • Report this Comment On March 02, 2014, at 1:08 PM, LouisTewl wrote:

    The one major complaint I have about TMF is that when they have a position in a given company they use the site as a bully pulpit to issue a continuing stream of negative articles about other companies in the sector while continuing to tout their companies of interest.

    It gets real old. John Roseveer in the auto space did the same thing with Ford and Chrysler - the articles were so slanted towards Ford and against Fiat/Chrysler it was disgusting.

    This approach does NOT educate, enrich, or amuse. It's just thinly-veiled propaganda and competitor-bashing, and TMF readers are becoming increasingly aware of it, and TMF is losing credibility accordingly, as it should.

  • Report this Comment On March 02, 2014, at 1:59 PM, TMFSymington wrote:

    @i7up2001: BBM can release all the new features they want, but you still haven't quantified those features into a justifiable valuation.

    Also, as I mentioned in the article, when BBRY announced eBBM Tuesday John Sims appeared to verify the entire BBM platform is "only" at 85 million -- unless he was mistakenly citing old figures (and that would be a big mistake on his part), that indicates the initial expected rush of new users has slowed significantly.

    Even then, you can't just assume every BBM user will be able to invite three new friends, especially when almost a third of those 85M are enterprise customers.

    And make no mistake, my argument against BBM does not negate the intrinsic value of the rest of BlackBerry's business -- esp. its enterprise strength. In the end, I maintain investors simply shouldn't get too excited about BBM because of the price Facebook paid for WhatsApp.

    @LouisTewl: Though TMF does own Facebook shares, I don't. And we're most definitely NOT paid to simply agree with the recommendations of our premium services. To the contrary, we're encouraged to write when we disagree, as we firmly believe it makes us all better investors to consider both sides of any stock.

    As for "losing credibility," I respectfully disagree, and I'm not the only one: http://online.wsj.com/news/articles/SB1000142412788732399700...

    Thanks for reading and Fool on,

    Steve (TMFSymington)

  • Report this Comment On March 02, 2014, at 2:17 PM, RapTelligence wrote:

    I too do not expect BBM to get a 19 billion valuation. a) Because WhatsApp was at the right place at the right time. b) Although its a better product I do not expect it to grow as fast as WhatsApp. That being said, I still believe since messaging is pretty crucial going forward, Chen will find a way to monetize this vehicle. But I would not wait for a white knight like FB to suddenly appear.

  • Report this Comment On March 02, 2014, at 9:05 PM, Never wrote:

    Never say never

  • Report this Comment On March 03, 2014, at 12:04 AM, abigchocoholic wrote:

    BBM makes no money and has no chance of making any money in the foreseeable future.

    WhatsApp makes about 300m a year and will likely hit 500m-600m within a year or two and even then it won the lotto withe FB buyout.

    Saying "my neighbor won the lotto so my $1 ticket is worth half the lotto or a third the lotto" is a non-starter.

  • Report this Comment On March 03, 2014, at 1:34 AM, andyrew510 wrote:

    "WhatsApp makes about 300m a year and will likely hit 500m-600m within a year or two and even then it won the lotto withe FB buyout."

    What are you talking about? Whatsapp had $20 million of revenue last year. $20 million, not $300 million. BBM just launched eBBM, which enterprises will pay for.

  • Report this Comment On March 03, 2014, at 4:23 AM, vincentliew wrote:

    Never say never, don't judge first.

  • Report this Comment On March 03, 2014, at 9:57 AM, greenember wrote:

    BBM won't get the same valuation because it's not a phone number based system like WhatsApp. Facebook didn't buy a messaging platform; they already had one. What Facebook bought was 465 million Contact Books giving it access to people's REAL networks, not just the ones they chose to share online

  • Report this Comment On March 03, 2014, at 1:10 PM, criticalfool wrote:

    Motley Fool is a joke.

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