How BlackBerry's Deal With Amazon Can Aid Its Turnaround

BlackBerry's (NASDAQ: BBRY  ) stock has soared since the company released its quarterly results. The company has been struggling for quite some time now, but the recent earnings report implies that its turnaround is on track. John Chen, BlackBerry's CEO, has done some excellent work, and the recent deal with Amazon (NASDAQ: AMZN  ) should further supplement the company's turnaround. 

BlackBerry's bleeding is slowing down
Revenue for the quarter came in at $966 million, slightly lower than $976 million in the previous quarter, but ahead of analysts' estimates of $954 million. On the earnings front, BlackBerry reported a loss of $0.11 per share, which was way ahead of the consensus estimate of a loss of $0.25 per share.

The excellent quarter can be attributed to Chen's cost-cutting initiatives, as under his leadership, BlackBerry's expenses plunged 57% year over year. Most importantly, BlackBerry's cash balance jumped $400 million, sequentially, to $3.1 billion.

Although BlackBerry will not be able to sustain this cost-cutting program forever, investors must remember that every sacked employee had to be paid compensation, and the collective sum of that compensation has been included in the quarterly results. This means that BlackBerry will not have to pay compensation once the cost-cutting drive stops.

Deal with Amazon
Although BlackBerry has shifted its focus from the handset-making business to enterprise software development, the deal with Amazon holds great importance. The majority of naysayers still believe that BlackBerry's handset business defines the company, and even a minor sales boost in this segment will have a considerable effect on the share price.

BlackBerry's smartphone market share currently stands at a measly 1.2%. The company lost its dominant handset business to the likes of Apple and Google, primarily because of the lack of applications, and it is safe to assume that it might never recover. However, investors need to realize that since the handset business isn't BlackBerry's primary revenue driver, the company doesn't need to recover strongly in this area. Even a small improvement in market share will be enough to scare the shorts, which is why the Amazon deal is so important.

By partnering with Amazon, BlackBerry will address the app shortage problem on its BB 10 platform. Even though BlackBerry has tried to sort this problem by incorporating Android apps in earlier versions of BB 10, it failed because of awkward integration.

But with Amazon, BlackBerry will add over 240,000 apps to the 130,000 apps already available. While the count is still less than one-third of what's available in Google's Play Store and Apple's App store, this covers many of the famous apps like Netflix and Candy Crush Saga. This deal will certainly appeal to users who only want basic apps, and may even boost BlackBerry's handset business.

Moreover, this deal also ensures that BlackBerry spends its time and resources on the software enterprise segment, rather than over-indulging in the app shortage problem. In an interview with the Wall Street Journal, Chen said, "I do not have to spend time, energy and money developing apps that Amazon offers. Given I want to financially turn around the company and focus on the enterprise space, this is perfect for us." 

The terms of this partnership haven't been disclosed, but it's safe to assume that BlackBerry will get a percentage of each app sold, thus it's a win-win situation for both companies.

BlackBerry's strategy of outsourcing its app problem to Amazon was a smart one. In doing so, the company can focus on strengthening its enterprise business and cloud applications. At the same time, demand for its handsets might increase in emerging markets. While smartphone growth might not be a big deal for the company now, it will certainly lift investor confidence and lead to better stock price performance.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.


Read/Post Comments (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3008361, ~/Articles/ArticleHandler.aspx, 8/31/2015 3:07:34 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Amit Patel

Today's Market

updated 2 days ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 3:59 PM
BBRY $7.37 Up +0.18 +2.50%
BlackBerry CAPS Rating: *
AMZN $518.01 Down -0.36 -0.07% CAPS Rating: ***