Will Amazon.com Or Google Make A Run For BlackBerry?

BlackBerry Ltd (NASDAQ: BBRY  ) shares soared higher 11% after a realization that the company is no longer in a fundamental freefall following its quarterly report, but rather stabilizing. As its cost-cutting initiatives end and its focus on growth begins the question turns to whether a larger company like Amazon.com, Inc (NASDAQ: AMZN  ) or Google Inc (NASDAQ: GOOG  ) (NASDAQ: GOOGL  )  will scoop up BlackBerry?

A few notes on the quarter
Before we discuss the acquisition topic, let's look at a few highlights from the quarter which play a role in the discussion. These highlights were taken directly from its 6-K filing or conference call.

  • Revenue was $966 million with 39% from hardware and 61% from services and software
  • BlackBerry sold 2.6 million phones but only 1.6 million were realized due to inventory-related problems. This was better than last quarter's 1.3 million units.
  • Its adjusted gross margin of 48% represents a 500 basis point increase from the prior quarter.
  • BlackBerry now has a $3.1 billion cash and investment balance
  • BlackBerry's Enterprise Server launched in March and has issued 1.2 million licenses.

Essentially, the referenced notes represent the reason why shares are trading higher following earnings, and also why a bigger company might finally see BlackBerry as an attractive acquisition target.

Why would Amazon want BlackBerry?
In many ways BlackBerry's demise can be connected to the rise of far stronger ecosystems with better applications. BlackBerry has just 130,000 applications which lags larger platforms like iOS and Android. Yet on Wednesday BlackBerry got a boost to its operating system when it announced that Amazon's Appstore will now be available on its 10.3 operating system .

This news gives BlackBerry users access to Amazon's 240,000 applications like Pinterest. As a result, this larger offering could attract more of the consumer market, perhaps swaying its current 80% to 20% ratio that favors enterprise users over consumers.

Amazon is clearly a consumer company but one that's flirting with hardware via the Kindle and its recently announced Fire smartphone. BlackBerry already has a large hardware business, although downsized, and the combination of applications might make Amazon interested in BlackBerry if it plans to create more versions of its smartphone, like we saw with the Kindle. In the past this might have been unrealistic but with phone sales stabilizing and even growing by 300,000 units quarter-over-quarter to 1.6 million, Amazon might find the opportunity appealing.  

Not to mention, BlackBerry's software and services business, which is largely built on managing and securing mobile devices and applications would fit in well with Amazon's Web Services platform. Amazon is a leader in cloud services by controlling more than 30% of the cloud infrastructure, or laaS, and app platforms, or PaaS, businesses. 

Currently, Amazon has more than $1 billion of quarterly revenue created from laaS and PaaS and is growing at more than 50% annually . Evercore estimates that Amazon's Web Services business is worth $50 billion. 

Therefore, with this business being so important and valuable to Amazon it makes sense that it would want to bolster its position in the industry. BlackBerry's Enterprise Service launched in March and already has 1.2 million licenses. This segment might be appealing to Amazon and its growing web services operations. 

What about Google?
The obvious reason that Google might be interested in BlackBerry is its hardware business. Given Google's disastrous acquisition with Motorola Mobility some might think it's foolish to suggest interest from the search giant.

In the past Google would've never been interested in BlackBerry due to its unwillingness to use Android applications and the unknowns surrounding its hardware struggles. However, now that BlackBerry is using some Android applications via Amazon and its hardware business has stabilized there is a real chance that Google will make a run for BlackBerry.

In addition to hardware Google might find BlackBerry's large patent portfolio to be attractive. The company has a patent portfolio worth up to $3 billion according to some analysts.  Given the fact that BlackBerry was among the first companies in the smartphone business many of its patents cover hardware.

With that said, BlackBerry also has a large $3.1 billion cash position relative to its market capitalization of $4.8 billion. This, combined with its patent portfolio and recovering hardware business, creates deep value for the company, and could very well suit many of Google's needs. 

Foolish Thoughts
In retrospect, there are a handful of companies that should find a stabilizing BlackBerry attractive, either for hardware, software, patents, or cash. This is a company that answered many of its critics during the last quarter and finally appears to be on the right track. So don't be surprised if both Wall Street and big technology peers take notice.

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