Why Partnering With Amazon Could Keep BlackBerry's Momentum Going

You may think it's hard to believe, but BlackBerry's software and services have the potential to pave the way for a profitable future.

Jun 24, 2014 at 9:00PM

Now that BlackBerry Limited (NASDAQ:BBRY) is fresh off a first-quarter earnings report which surprised nearly everyone, and showed that the company still has some life left, investors are likely wondering what's next. The company made measurable progress across its business, even in hardware, and will need to keep the momentum going to continue its turnaround.

Fortunately, the company has several promising developments in the pipeline, particularly when it comes to software and services. This will help it keep progressing going forward. One example is a new partnership with Amazon.com (NASDAQ:AMZN). This is very important to BlackBerry, since software and services represent the bulk of its business now. The new BlackBerry will likely be known much more for software and services than hardware, and the partnership with Amazon is a big step in that direction.

While it might be hard to believe, here's why you may actually have reason to be optimistic about BlackBerry's future.

Several initiatives showing progress
BlackBerry's quarter, while unspectacular on the surface, was an important indication that perhaps the floor is in. The company managed to stem the steep declines on the top and bottom lines that worried analysts and investors that the company was in real danger.

In all, revenue dipped just 1%, and BlackBerry turned a $23 million net profit thanks to significant cost cuts. BlackBerry reduced quarterly operating expenses by 57%, which boosted gross margin by five percentage points.

Other than cost cuts, BlackBerry did show progress in several key strategic initiatives. This was true even in hardware. BlackBerry recognized hardware revenue on approximately 1.6 million smartphones, which was 300,000 more than it recognized in the previous quarter.

Services are where BlackBerry really shined, and that area represents the best avenue for future growth since services make up more than half the company's total revenue. Combined with software, these two areas are where BlackBerry needs to keep focus.

A very exciting development is the budding partnership with Amazon that BlackBerry recently announced. Coming this fall, BlackBerry will partner with Amazon for mobile apps on BlackBerry 10.3, which will add more than 240,000 Android apps to the platform. The Amazon Appstore will be pre-loaded with the BlackBerry 10.3 operating system. This will go a long way in building a competitive application ecosystem for BlackBerry.

Last but not least, BlackBerry launched its mobile payment system BBM Money in Indonesia. BlackBerry is making a big push into the emerging markets, which represent a significant opportunity for growth. Separately, BlackBerry successfully launched the new Z3 device in Indonesia last quarter, with launches in 8 additional nations to come.

Balance sheet to remain strong
BlackBerry's balance sheet strengthened last quarter as well, which provides an important margin of safety. The company's cash balance increased by $429 million quarter over quarter, and now stands at $3.1 billion. However, it's worth noting that much of the increase was due to non-operational factors. BlackBerry received a tax refund of $397 and proceeds from real estate sales of $287 million. Focusing on its core operations reveals that BlackBerry actually burned through $255 million in cash.

Even so, BlackBerry's cash burn decreased by over two-thirds from the prior quarter. And, management doesn't foresee the company burning through too much more cash the rest of the year. Chief Financial Officer James Yersh stated in the conference call he doesn't expect BlackBerry's cash balance to drop below $2.5 billion this year, so the balance sheet should remain strong.

Don't write off BlackBerry
It might seem foolish (small 'f') to say it, but BlackBerry might have some life left. It's making an important shift in focus that could pave the way for a profitable future. There isn't much chance for BlackBerry to make a comeback in hardware, since it's likely a losing battle, at least as far as the United States is concerned.

But that doesn't mean BlackBerry is hopeless. The company still has an opportunity to become popular in hardware overseas. And, perhaps more importantly, the company is still a viable player in software and services. This is especially true now that BlackBerry has announced an exciting partnership with Amazon that will bring hundreds of thousands of new applications to BlackBerry's updated operating system. If the partnership gains traction, BlackBerry might just have a real future.

Leaked: Apple's next smart device (warning, it may shock you)
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Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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