Can BlackBerry Ltd Become Relevant Again?
BlackBerry Ltd (NASDAQ:BBRY) stock had a terrible start this year and almost halfway through 2016, things haven’t gotten much better. Year-to-date, BlackBerry stock is down more than 25%. Is it time to ditch the company altogether?
Not really. Let me explain…
Everyone knows that BlackBerry’s hardware business has been deep in the doldrums. And let’s be honest here, it’s not that BlackBerry can’t make a popular smartphone again; it’s just that in today’s competitive environment, it would take a lot of time and energy (and money) to develop a new device, even if it’s running “Android.” Moreover, it would be more difficult to make the device profitable.
That’s why many have suggested that BlackBerry should exit the hardware business altogether. If you take away that segment, the company suddenly becomes attractive again.
In case you haven’t caught up yet, BlackBerry has a booming software and services segment. In its most recent fiscal quarter, the company’s non-GAAP software and services revenue surged 106% year-over-year to $153 million. (Source: “BlackBerry Reports Software and Services Growth of 106 Percent for Q4 and 113 Percent for Fiscal 2016,” BlackBerry Ltd, April 1, 2016.)
The neat thing is that software and services do not require the company to follow the same update cycle of hardware products. Moreover, with so many enterprise customers onboard, money made from software and services could be recurring. In fact, BlackBerry had more than 3,600 enterprise customer wins in the quarter. And 70% of its quarterly software revenue was recurring.
Going forward, there are quite a few catalysts that could help BlackBerry further grow its software and services segment.
First up is the automotive industry. Today, many tech companies are in the race to develop driverless cars. BlackBerry, on the other hand, is taking a different approach—its QNX Software Systems division is going to build software powering autonomous vehicles. Some of the technologies QNX covers include advanced driver-assistance systems (ADAS), vehicle-to-everything communication (V2X), and even augmented reality. (Source: “CES 2016 Video: How QNX Paves the Way to an Autonomous Driving Future,” BlackBerry Blog, January 7, 2016.)
Of course, driverless cars are for the future. Right now, BlackBerry already has a strong presence in the car business. The company’s chief executive officer, John Chen, said that BlackBerry’s QNX for in-car navigation and entertainment systems is used in more than 60 million vehicles. (Source: “BlackBerry Pushes to Extend Software to Self-Driving Cars,” Bloomberg, December 18, 2015.)
This means BlackBerry has already built long-standing relationships with automakers. If they also choose BlackBerry when it comes to developing infotainment systems for driverless cars, it could be the next big thing for BBRY stock.
And that’s not all. BlackBerry also has a booming device management business. Last year, the company boosted its cross-platform capabilities by acquiring Good Technology, which specializes in managing mobile devices running on Android, “iOS,” and “Windows.” At the same time, it also bought Athoc, Inc., a leading provider of secure, networked crisis communications.
In its most recent fiscal quarter, BlackBerry launched five secure enterprise mobility management suites as well as a cybersecurity consulting service. As we move into the “Internet of Things” (IoT) era, BlackBerry’s device management platform could see tremendous growth ahead.
The company’s hardware business, on the other hand, doesn’t look as promising. In the quarter, the segment brought in $184 million in revenue, representing a 32.8% year-over-year drop. At a time when even “iPhone” sales are declining, it would be extremely difficult to succeed in the smartphone business.
The Bottom Line on BlackBerry Stock
That being said, there is still hope for BBRY stock, and that’s to exit the hardware business all together. Will management choose such a strategy? Well, in April, Chen told CNBC that “If by September, I couldn’t find a way to get there, then I need to seriously consider being a software company only.” (Source: “Chen: BlackBerry Could Go Software Only by September,” CNBC, April 1, 2016.)
The bottom line is that the company is far from over. If it chooses to transition to a software- and services-only company, BlackBerry stock could become relevant again.