The Real Reason Why BBRY Stock Plummeted
Christmas time was felicitous for BlackBerry Ltd (NASDAQ:BBRY), as the company ended the year on a winning streak. Come 2016, however, everything went topsy-turvy again. But if you think this recent decline in BBRY stock had anything to do with the company, you couldn’t be more wrong!
Mr. Market doesn’t see it, but BlackBerry CEO John Chen is quietly transforming the company’s business model, which will forever change its fate. But before I get to that, I must share the real reason behind BlackBerry stock’s recent fall.
The fact of the matter is that not one, but all technology companies have nosedived beginning this year. All these victims have only one culprit to blame. The selling frenzy began in 2016 with the Chinese market crash and continued as commodities faced the biggest rout in years. Following these events are the global market crashes in Europe and Japan, where local exchanges have entered bear markets. Consequentially, the U.S. market giddied, causing a downward pressure on stocks across all sectors.
To get a better idea, take a look at the chart below that compares BBRY stock with the iShares S&P Global Tech ETF (NYSEArca:IXN), which trails the stock price movements in some of the heavyweights in the technology industry, including Apple, IBM, Alphabet, Microsoft, Facebook, and Intel. Notice its steep plunge at the beginning of this year that mirrors that of BlackBerry’s.
Chart courtesy of www.StockCharts.com
So, to say that this had anything to do with the company’s fundamentals is a fallacy. On the contrary, I have a reason to believe that this cornered tiger is about to pounce back at the bears.
1 Simple Reason to Be Bullish on BBRY Stock
Recall that 2015 was a year of heavy M&A (merger and acquisition) activity. Low interest rates tempted many struggling corporations to secure debt in order to fund futile acquisitions that created little value for shareholders. But while most corporations were busy in artificially propping up their stock prices, BlackBerry made two solid acquisitions that have ended up delivering better-than-expected synergistic value.
Now, there’s something very interesting about these two acquisitions. Both of these companies bought out by BlackBerry—Good Technology and AtHoc—are software companies.
The software side of BlackBerry’s business, until these acquisitions, made up only 15% of its revenue mix. Its other two business segments—hardware and services—made up the majority of the company’s revenue. So, it would have made more sense for John Chen to make acquisitions for the latter segments.
But there was one problem—both of these were facing a decline.
Instead of making a push in the unprofitable business segments, BlackBerry CEO John Chen took a wager on the software business.
This is where the two software acquisitions come in. Together, the two companies took BlackBerry’s software business from 15% of BBRY’s revenue mix to 29% in less than six months, delivering a triple-digit year-over-year revenue growth of 183%.
The good news is that the winning streak for this segment is continuing. The company has won some very promising contracts with these two acquisitions, the latest of which is a multimillion-dollar contract with the U.S. Department of Veteran Affairs. (Source: “BlackBerry’s AtHoc Awarded $20 Million Multiple-Year Delivery Order for Department of Veterans Affairs Enterprise-Wide Crisis Communications,” AtHoc, January 18, 2016.)
Separately, the company’s QNX software subsidiary has recently entered lucrative partnerships with Luxoft Holding and Ford to develop semi-autonomous driving assistants and IoT (“Internet of Things”) connectivity software between smartphones and cars.
The Bottom Line on BBRY Stock
BlackBerry’s latest “Android” phone, the “BlackBerry Priv,” has generated a lot of media buzz, both negative and positive. However, little is said about the company’s software business. Even if the naysayers are right and this piece of hardware turns out to be a dud, BlackBerry still has an alternate source of business that is not only profitable, but it also boasts strong growth prospects.
To sum it all up, I say, sit tight and watch the bears run for cover, as BBRY stock gears up to make a solid comeback on the back of its promising software business segment.