During my free time, I invest in stocks, usually keeping positions for a couple of days to a couple of months. Because I have less time to research stocks now (during the school year), I keep my positions for many months. I'm a fundamentalist investor, so my long term investing strategy during the school year usually works out.
Every now and then, I plan to post some of my fundamental analysis on different companies.
Today's analysis is on BlackBerry. I first did the fundamental analysis on BlackBerry when I bought the stock a couple months ago, but I feel I should re-analyze the company after recent market events.
There is hope. The bullish part.
So, now we've established that BlackBerry is a company that is somewhat doomed to fail. Its only revenue source, the sale of its phone line, has turned out to be a disaster as neither consumers nor businesses like the phones very much, they don't bring any new features/technology to the market, and there is a new adversary, Android.
Every now and then, I plan to post some of my fundamental analysis on different companies.
Today's analysis is on BlackBerry. I first did the fundamental analysis on BlackBerry when I bought the stock a couple months ago, but I feel I should re-analyze the company after recent market events.
BBRY: History and Background information
BlackBerry is a phone company that makes its revenue by selling mobile phones to consumers and businesses. BlackBerry also produces its own mobile Operating System that it runs on its mobile phones. Currently, BlackBerry's main market is with businesses as consumers have lost interest in BlackBerry phones. BlackBerry is popular with businesses because of its secure operating system, and restrictions on what the phone holder can do. Businesses like providing their high-level employees with BlackBerry phones because they know the phones are secure, and won't allow unauthorized people to access the phone's files (ex. emails, presentations, etc.). Additionally, BlackBerry phones give the IT department of the company superlative power over the phone; the IT department can dictate exactly what the employee can use the phone for, so that the phone is not misused.
BlackBerry used to be very popular among consumers in the early to late 2000s, until the first iPhone and Android phones were released. BlackBerry did not release any developer APIs or add more games/ apps to its relatively simple mobile operating system, while iOS and Android, had public APIs that allowed 3rd parties to create apps. This resulted in thousands of developers making tens of thousands of apps, covering a wide spectrum of applications(games, finances, social media, fitness, etc). Within a couple of years, BlackBerry's market share halved, and then halved again; no consumer wanted a boring BlackBerry phone with a big physical keyboard that only had a couple of apps when they could get an iPhone with tens of thousands of apps, a music library, and a movie library.
BlackBerry still did not adapt to the changing market, just like Abercrombie and Fitch did not adjust to the recession in 2009 by lowering their prices, and BlackBerry's stock took a severe hit. BBRY fell from a high of $142 in 2009 to $18 in 2012. Ok, you argue, so what if BlackBerry's stock price fell $100+, the stock market crashed in 2009, and many other company's prices fell that much. But, BlackBerry, unlike most other companies whose stock price took a sudden hit, kept on decreaing, and decreasing. For the past two years, the stock price has been decreasing until it began fluctuating in the $10 - $15 range, while the Nasdaq 500 increased by over 100%, and its technology stock sector increased by over 50%.
In summation, BlackBerry's stock price is at an all time low where it seems to have found support in the $10 range. This might be a good spot to begin acquiring positions in the company (more on that later).
BlackBerry is a phone company that makes its revenue by selling mobile phones to consumers and businesses. BlackBerry also produces its own mobile Operating System that it runs on its mobile phones. Currently, BlackBerry's main market is with businesses as consumers have lost interest in BlackBerry phones. BlackBerry is popular with businesses because of its secure operating system, and restrictions on what the phone holder can do. Businesses like providing their high-level employees with BlackBerry phones because they know the phones are secure, and won't allow unauthorized people to access the phone's files (ex. emails, presentations, etc.). Additionally, BlackBerry phones give the IT department of the company superlative power over the phone; the IT department can dictate exactly what the employee can use the phone for, so that the phone is not misused.
BlackBerry used to be very popular among consumers in the early to late 2000s, until the first iPhone and Android phones were released. BlackBerry did not release any developer APIs or add more games/ apps to its relatively simple mobile operating system, while iOS and Android, had public APIs that allowed 3rd parties to create apps. This resulted in thousands of developers making tens of thousands of apps, covering a wide spectrum of applications(games, finances, social media, fitness, etc). Within a couple of years, BlackBerry's market share halved, and then halved again; no consumer wanted a boring BlackBerry phone with a big physical keyboard that only had a couple of apps when they could get an iPhone with tens of thousands of apps, a music library, and a movie library.
BlackBerry still did not adapt to the changing market, just like Abercrombie and Fitch did not adjust to the recession in 2009 by lowering their prices, and BlackBerry's stock took a severe hit. BBRY fell from a high of $142 in 2009 to $18 in 2012. Ok, you argue, so what if BlackBerry's stock price fell $100+, the stock market crashed in 2009, and many other company's prices fell that much. But, BlackBerry, unlike most other companies whose stock price took a sudden hit, kept on decreaing, and decreasing. For the past two years, the stock price has been decreasing until it began fluctuating in the $10 - $15 range, while the Nasdaq 500 increased by over 100%, and its technology stock sector increased by over 50%.
In summation, BlackBerry's stock price is at an all time low where it seems to have found support in the $10 range. This might be a good spot to begin acquiring positions in the company (more on that later).
Why BlackBerry is at an all time low this year
Earlier this year, there was a lot of hype about BlackBerry's new product line that would save the company. BlackBerry knew it was failing, and invested a lot of money into designing some new phones that they hoped would bring back its market share. BlackBerry even released an app for BlackBerry devices, iOS devices, and Android devices that allowed free group chat, similar to WhatsApp. Unfortunately for BlackBerry, two events obliterated any bulls that felt the company could make a rebound because of its new product line. The first was leakage of its new product line about a week before it was scheduled to be displayed at a conference. This caused the company to not get any pre-release hype, and actually caused a massive sell off. The second, more fatal event, was a previewing of Android Version 18 (Kit Kat).
Kit Kat enabled the Android phone to have two separate accounts/virtual machines, one for private/personal use, and the other for work/secure use. Because the two accounts were separate, the chances of a virus that the user accidentally downloads on their personal account, will not be able to access the work account. This announced Android's official entry into the competition with BlackBerry to get the business market. Additionally, there was a larger variety of Android phones then BlackBerry phones, which attracted more consumers and businesses to Android. Android had phones with small screens, medium screens, large screens, tablet sized screens, and phones with large touch screens and physical QWERTY keyboards. BlackBerry only has six main phones, four of them are small phones with physical keyboards and super small screens, and two phones with no physical keyboard and a large screen. BlackBerry's small screens with small keyboards restricted the main population that would buy them, older people (age > 30) would not be like the small screen and tiny keys (hard to use), while people under 30 would rather have a big touch screen phone. To further weaken BlackBerry's product line was the fact that the phones had no features that the iPhone and Samsung Galaxy SIV did not have; it only had 16 GB internal storage, 4" touch screen, and 4G LTE.
A common trend among employees who work in businesses where they are given BlackBerry phones is to have two phones, one BlackBerry (for work), and an Android or iOS phone for family. There are two reasons for this. 1. Most employees did not like the BlackBerry phone, the keyboard was small, the apps weren't good, and browsing the Internet was a pain. The second reason was that BlackBerry phones could not be used as normal phones; people couldn't put their huge iTunes library onto the phones, or they couldn't play Temple Run while waiting for their bus.
Android just eliminated that need for two different phones with their mobile KitKat operating system. With one Android phone, you could have a work account which the IT department controls, and contains secure work information, while you could simultaneously have a family/social account which was used for leisure. Plus, there was a wide variety of Android phones that users could choose from, primarily from Samsung and HTC, who both release new phones every half year.
Earlier this year, there was a lot of hype about BlackBerry's new product line that would save the company. BlackBerry knew it was failing, and invested a lot of money into designing some new phones that they hoped would bring back its market share. BlackBerry even released an app for BlackBerry devices, iOS devices, and Android devices that allowed free group chat, similar to WhatsApp. Unfortunately for BlackBerry, two events obliterated any bulls that felt the company could make a rebound because of its new product line. The first was leakage of its new product line about a week before it was scheduled to be displayed at a conference. This caused the company to not get any pre-release hype, and actually caused a massive sell off. The second, more fatal event, was a previewing of Android Version 18 (Kit Kat).
Kit Kat enabled the Android phone to have two separate accounts/virtual machines, one for private/personal use, and the other for work/secure use. Because the two accounts were separate, the chances of a virus that the user accidentally downloads on their personal account, will not be able to access the work account. This announced Android's official entry into the competition with BlackBerry to get the business market. Additionally, there was a larger variety of Android phones then BlackBerry phones, which attracted more consumers and businesses to Android. Android had phones with small screens, medium screens, large screens, tablet sized screens, and phones with large touch screens and physical QWERTY keyboards. BlackBerry only has six main phones, four of them are small phones with physical keyboards and super small screens, and two phones with no physical keyboard and a large screen. BlackBerry's small screens with small keyboards restricted the main population that would buy them, older people (age > 30) would not be like the small screen and tiny keys (hard to use), while people under 30 would rather have a big touch screen phone. To further weaken BlackBerry's product line was the fact that the phones had no features that the iPhone and Samsung Galaxy SIV did not have; it only had 16 GB internal storage, 4" touch screen, and 4G LTE.
A common trend among employees who work in businesses where they are given BlackBerry phones is to have two phones, one BlackBerry (for work), and an Android or iOS phone for family. There are two reasons for this. 1. Most employees did not like the BlackBerry phone, the keyboard was small, the apps weren't good, and browsing the Internet was a pain. The second reason was that BlackBerry phones could not be used as normal phones; people couldn't put their huge iTunes library onto the phones, or they couldn't play Temple Run while waiting for their bus.
Android just eliminated that need for two different phones with their mobile KitKat operating system. With one Android phone, you could have a work account which the IT department controls, and contains secure work information, while you could simultaneously have a family/social account which was used for leisure. Plus, there was a wide variety of Android phones that users could choose from, primarily from Samsung and HTC, who both release new phones every half year.
BlackBerry's job of increasing its revenue is not easy. First, BlackBerry needs to come up with a unique product and software that Android, iOS, and Windows 8 do not have. Then, BlackBerry needs to increase the number of apps it has available. BlackBerry needs to create such a good product that it will want to make consumers, who are comfortable with their iOS and Android devices that they've used for years, want to switch over to Blackberry.
There is hope. The bullish part.
So, now we've established that BlackBerry is a company that is somewhat doomed to fail. Its only revenue source, the sale of its phone line, has turned out to be a disaster as neither consumers nor businesses like the phones very much, they don't bring any new features/technology to the market, and there is a new adversary, Android.
But, that is the American market. BlackBerry can begin investing in emerging markets. Although the majority of wealthy Indians in India have been 'Androided' or 'iOSed', BlackBerry can still create a cheap product for the low income Indians. Then, its main competition will only be Nokia, and Nokia is not nearly as advanced as BlackBerry is, in terms of phone specifications/features, and software integration. But, it's not just India. Latin America and South America are two whole markets that have not been taken over by Android, iOS, Nokia, or Windows 8.
BlackBerry currently has $2.6 billion in cash, and is debt free, which means it is free to invest that money into international markets to increase its revenue. And that's why I believed BlackBerry would be a good buy.
Looking at BlackBerry's income statement, and the current price of its shares, I concluded that BlackBerry was at a support level around the $9 range, and (1). would not plummet much further below $9, (2). possibly be bought out/taken over. BlackBerry's income statement shows revenue decreasing from $20 billion in 2011 to $19 billion in 2012, to $11 billion in 2013, while the profits decreased from $8 billion in 2011 to $3 billion in 2013. So, in March 2013, when BlackBerry announced its earnings, the stock did a dive, but found support in that $9 range. Only the longs and bulls held on to BlackBerry's shares, and if they didn't sell when the company's revenue dropped $5 billion in two years, that showed they were willing to endure much more for the company.
I predicted BlackBerry might be bought out because it was still a very valuable company, with over $13 billion in assets (and only $3.7 billion in liabilities), and it came with a copious, robust patent portfolio. BlackBerry has also never been hacked, unlike iOS (jailbreak), Android (rooting), and Windows 8 (viruses). Each of those patents, with a life of 12+ years, are worth hundreds of thousands, if not millions of dollars. Both the patents and the net assets add to the value of Blackberry. One of the main problems with BlackBerry now is that it needs to go private, in order to save itself in the long run. This happens to some publicly traded companies, like Dell. The publicly traded company has shares bought by Wall Street banks, and those Wall Street Bankers just want to see immediate profits quarter after quarter for a bit, before selling the stock and finding a new one. This means the company has to focus on spending its money on a short-term revenue increase, instead of spending money on making more money long term. Because the Wall Street shareholders own so much of a company (ie. Dell) the CEO has his hands tied, and is forced to work on short term profits, because the long term profit plans will be vetoed by Wall Street.
I had the idea of an investment in BlackBerry a couple months ago after Dell announced it wanted to go private. Dell, like BlackBerry, was a major technology company in the early 2000s, and it too failed to adapt to the different market needs. Apple, Lenovo, and HP quickly became more popular then Dell, and Dell's market valuation plummeted. Dell too decided to go private in order to focus on a long term revenue increasing strategy that the short term Wall Street investors would veto. Dell's shares shot up when the company announced the plans, which is exactly what I hoped would happen with BlackBerry. Currently, Fairfax consortiums offered to buy BlackBerry out at $9 per share, which is lower then I would have liked, but I bought in at $7, so I won't complain. There are still 5 weeks left in the plan where another company can bid on BlackBerry. I strongly believe that Fairfax would have offered to buy BlackBerry for $11 or more if BlackBerry had not announced the massive loss that blind sided investors a couple days ago. BlackBerry gave a warning to investors that it was expecting a $965 million loss, and was firing 4,500 people (most of the company). This of course caused stock prices to tumble, but the market later adjusted for the overreaction.
BlackBerry currently has $2.6 billion in cash, and is debt free, which means it is free to invest that money into international markets to increase its revenue. And that's why I believed BlackBerry would be a good buy.
Looking at BlackBerry's income statement, and the current price of its shares, I concluded that BlackBerry was at a support level around the $9 range, and (1). would not plummet much further below $9, (2). possibly be bought out/taken over. BlackBerry's income statement shows revenue decreasing from $20 billion in 2011 to $19 billion in 2012, to $11 billion in 2013, while the profits decreased from $8 billion in 2011 to $3 billion in 2013. So, in March 2013, when BlackBerry announced its earnings, the stock did a dive, but found support in that $9 range. Only the longs and bulls held on to BlackBerry's shares, and if they didn't sell when the company's revenue dropped $5 billion in two years, that showed they were willing to endure much more for the company.
I predicted BlackBerry might be bought out because it was still a very valuable company, with over $13 billion in assets (and only $3.7 billion in liabilities), and it came with a copious, robust patent portfolio. BlackBerry has also never been hacked, unlike iOS (jailbreak), Android (rooting), and Windows 8 (viruses). Each of those patents, with a life of 12+ years, are worth hundreds of thousands, if not millions of dollars. Both the patents and the net assets add to the value of Blackberry. One of the main problems with BlackBerry now is that it needs to go private, in order to save itself in the long run. This happens to some publicly traded companies, like Dell. The publicly traded company has shares bought by Wall Street banks, and those Wall Street Bankers just want to see immediate profits quarter after quarter for a bit, before selling the stock and finding a new one. This means the company has to focus on spending its money on a short-term revenue increase, instead of spending money on making more money long term. Because the Wall Street shareholders own so much of a company (ie. Dell) the CEO has his hands tied, and is forced to work on short term profits, because the long term profit plans will be vetoed by Wall Street.
I had the idea of an investment in BlackBerry a couple months ago after Dell announced it wanted to go private. Dell, like BlackBerry, was a major technology company in the early 2000s, and it too failed to adapt to the different market needs. Apple, Lenovo, and HP quickly became more popular then Dell, and Dell's market valuation plummeted. Dell too decided to go private in order to focus on a long term revenue increasing strategy that the short term Wall Street investors would veto. Dell's shares shot up when the company announced the plans, which is exactly what I hoped would happen with BlackBerry. Currently, Fairfax consortiums offered to buy BlackBerry out at $9 per share, which is lower then I would have liked, but I bought in at $7, so I won't complain. There are still 5 weeks left in the plan where another company can bid on BlackBerry. I strongly believe that Fairfax would have offered to buy BlackBerry for $11 or more if BlackBerry had not announced the massive loss that blind sided investors a couple days ago. BlackBerry gave a warning to investors that it was expecting a $965 million loss, and was firing 4,500 people (most of the company). This of course caused stock prices to tumble, but the market later adjusted for the overreaction.
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