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Don't Invest in BlackBerry Ltd. for the Wrong Reason

By Tim Brugger – Mar 1, 2014 at 12:45PM

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Despite a nice share price pop the past week, the device maker's fortunes are no different than they were last month.

BlackBerry (BB 1.56%) loyalists have enjoyed a nice year, as its stock price continues to impress, up more than 34% in 2014 alone. Not bad for a floundering device maker seemingly knocking on death's door a few months ago. Striking a deal with Foxconn to outsource the manufacturing of BlackBerry devices got the ball rolling, and one-time suitor and largest shareholder Fairfax Financial really jump-started BlackBerry's rise when it committed another $250 million earlier this year to support CEO John Chen's turnaround efforts.

Though shareholders certainly aren't complaining, the problem with BlackBerry's stock-price pop is that nearly a third of it has come in the past week, and for all the wrong reasons. For mid- to long-term investors, understanding why BlackBerry stock has increased about 11% the past week or so, and whether its rise is sustainable, are questions that need to be answered.

The good news
BlackBerry's recent run isn't without some merit. Chen and team have spent much of the past week introducing new products and services that gave fans some things to hold onto. BlackBerry Messenger, or BBM, arguably its most intriguing and valuable asset, will be available to Windows Phone users and for Nokia's new line of lower-end smartphones. BBM opened the doors to iOS and Android operating systems a while back and now has completed the OS availability trifecta.

Chen and his nearly new management team also introduced a couple of new phones in the past week, giving fans more ammunition for their buying spree. The two new phones, the all-touch Z3 designed with BlackBerry's Indonesian friends in mind, and the Q20, with physical keypad for diehards, should help to solidify its existing customer base.

About the same time BlackBerry was introducing its new phones and expanding its BBM universe, it also unveiled its latest, greatest enterprise solution, BES12. According to BlackBerry, the BES12 will "unify" earlier versions of the enterprise mobility services BES5 and BES10 into one platform and simplify pricing for customers with a new, tiered structure.

That's a lot of news, introductions, and possibilities for investors, and it'd be easy to think those drove BlackBerry's recent stock price run. While new smartphones, an upgraded enterprise solution, and an expansion of BBM's reach are nice, that's not what's driving BlackBerry's jump in value.

The not-so-good news
On one hand, introducing new phones isn't likely to hurt, but keep in mind that BlackBerry recognized revenue on a mere 1.9 million smartphones in its recent fiscal 2014 Q3, about half the previous year's Q3 sales. The introduction of a new phone to keep its dwindling customer base and another to try to win over new users in Indonesia hardly warrant a double-digit percentage jump in share price.

BlackBerry's growing enterprise customer base -- its BES 10 unit added another 5,000 customers last quarter -- and BBM is where Chen and team are going to win or lose, going forward. Unfortunately, BlackBerry is still trying to figure out the best way to monetize BBM's 85 million users, and therein lies the crux of the problem with its recent jump in stock price.

The real deal
The reason behind BlackBerry's recent 11% increase in stock price has little to nothing to do with its recent announcements. It's much simpler than that. Facebook has announced that it's paying $19 billion for a non-monetized, instant messaging app called WhatsApp. And a few days later in an interview with CNBC, Chen answered a question about selling BBM by stating the obvious: "If somebody comes to me with $19 billion, I would definitely sell it." Of course he'd sell BBM for $19 billion. Who wouldn't?

Final Foolish thoughts
Facebook's WhatsApp deal coupled with Chen's statement that he'd be open to a sale of BBM -- again, for $19 billion, of course he would -- gave speculative investors a lot of fodder, and a rise in stock price followed. But don't get swept up in that game. Investing in any company based on hope, particularly one in the midst of a do-or-die turnaround effort like BlackBerry, is a risky proposition. If you believe in Chen and the long-term prospects for BlackBerry, that's one thing, but don't bet on a sale of BBM; that's not the basis for a sound investment decision.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook. 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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