Are Investors Wrong About BlackBerry Ltd?

Investors are betting against Canadian handset giant BlackBerry (NASDAQ: BBRY  ) . With a short interest above 19%, BlackBerry is one of the most heavily shorted tech stocks in the market.

Are investors wrong to bet against the firm? Although BlackBerry's handsets continue to struggle against Apple's (NASDAQ: AAPL  ) iPhones and devices powered by Google's (NASDAQ: GOOG  )   (NASDAQ: GOOGL  ) Android operating system, the stock is up better than 30% year to date, strongly outperforming the S&P 500.

BBRY Chart

BBRY data by YCharts

The bear case
BlackBerry's short interest has been trending down in recent months, but has remained relatively high for years. The company has been a terrible long-term investment, losing more than 90% of its value since the beginning of 2008.

For the most part, short-sellers appear to betting on recent trends coming to their logical conclusion: BlackBerry's handsets, far outclassed by superior devices from Apple and Google, no longer have a place in enterprise, in emerging markets, or anywhere else.

BlackBerry's demise has been swift and sudden: In the first quarter of 2009, more than half of all U.S. smartphones were made by the company. Five years later, BlackBerry's share of the market is now effectively near 0%. BlackBerry has remained strong in some emerging markets, notably Indonesia, and continues to see some demand from businesses and government agencies.

But this appears to be short-lived. BlackBerry shares experienced a double-digit decline on Wednesday after Apple announced a partnership with IBM. Going forward, IBM will work to sell Apple's mobile devices (smartphones and tablets) to its enterprise clients.

Android's presence is the business world is far less concrete, but Google's mobile operating system threatens to steal BlackBerry's emerging market customers. Google's new program, Android One, aims to make cheap (yet decent) Android-powered handsets available to emerging market consumers.

The bull case
But not every investor is short BlackBerry -- indeed, the company appears to have a sizable group of supporters, some of which believe the stock could more than double from current levels. While no one expects BlackBerry's smartphones to make a comeback against Apple and Google, some see underappreciated value in the rest of the company.

When BlackBerry reported earnings last month, it noted that it had successfully launched "Project Ion" -- a program aimed at helping BlackBerry cash in on the emerging Internet of Things market.

So far, nothing significant has come of Project Ion, but its mere presence has excited some investors. With BlackBerry known for its enterprise security, businesses looking to deploy Internet of Things solutions could be attracted to BlackBerry's offerings.

BlackBerry also has other interesting pieces, including BlackBerry Messenger (BBM). In March, the company said it had 85 million people using the service on a monthly basis -- a far cry from WhatsApp's 500 million, but still quite significant given that WhatsApp was recently acquired for $19 billion (almost four times as much as BlackBerry's current market cap).

Like WhatsApp, many BlackBerry investors believe that the company remains a takeover candidate. Both Google and Apple are commonly seen as potential suitors, although the list includes many other firms.

The verdict
With 52% of its market cap ($3.1 billion) in cash, shorting BlackBerry at these levels appears to carry more risk than reward. At the same time, hoping for a takeover appears unwise (BlackBerry has seemingly been in play for years) and none of its other initiatives have provided much financial return.

With about 40% of its revenue still coming from hardware, BlackBerry looks like a lousy investment. But trading in the single digits, it could be a dangerous short.

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