Many people are familiar with BlackBerry Ltd (NASDAQ:BBRY) and the iconic e-mail devices introduced by the company in the mid-1990s. As you may recall, in the early 2000s, “Palm Pilots,” and the operating system on which they ran, controlled about 70% of the worldwide market for handheld personal digital assistants (PDAs).
That dominance ended when a company called Research in Motion introduced a smartphone called a “BlackBerry.” In the first quarter of 2016, devices that use the BlackBerry operating system accounted for a miniscule 0.2% of the total worldwide market share for smartphones, which has had a definite impact on BBRY stock and its customer base. (Source: “Gartner Says Worldwide Smartphone Sales Grew 3.9 Percent in First Quarter of 2016,” Gartner Inc, May 19, 2016.)
Research in Motion changed its name to BlackBerry Ltd in 2013 and today makes seven different models of smartphones. But, with the exception of Kim Kardashian and Hillary Clinton, you’d probably be hard-pressed to find anyone who uses one. But, in my opinion, that doesn’t matter. In fact, I don’t think it would be detrimental to the company or BBRY stock if the BlackBerry went the way of the old Palm Pilot; at least as a consumer gadget.
Hardware has ceased to be an important segment for BlackBerry. Between 2012 and 2015, Blackberry’s hardware sales declined from more than $6.6 billion to just $862 million. (Source: “Blackberry Ltd (Filer) CIK: 0001070235,” U.S. Securities and Exchange Commission, last accessed September 5, 2016.)
And, as you would expect, BlackBerry stock has taken a similar trajectory. In its last quarterly earnings announcement, BlackBerry didn’t even break out hardware sales as a separate line item. (Source: “BlackBerry Reports Record Software and Services Revenue for Q1 Fiscal 2017,” BlackBerry Ltd, June 23, 2016.)
What Does The Enterprise Customer Mean For BBRY Stock?
But BlackBerry isn’t going to stop making smartphones. The company is just going to change the channel into which it will continue to sell them. It is obvious that BlackBerry is abandoning its former consumer-focused mass-market strategy for the devices and is instead focusing on enterprise customers. This is what makes BlackBerry stock intriguing right now. BlackBerry has been reinventing itself for little more than a year, and to me it appears as if they’ve turned the ship around and have it pointed in the correct direction. BlackBerry should be poised to win over enterprise customers with a fully integrated, end-to-end security offering with its terminal point being a BlackBerry device.
Recent acquisitions take BlackBerry Ltd further and further away from being a consumer hardware manufacturer to a becoming a cybersecurity and secure communications software provider. This will enable BlackBerry stock to more rapidly grow revenue in a much higher-margin business. This is becoming more and more evident. On a non-generally accepted accounting practices (GAAP) basis, the company’s gross margins are now pushing through 50%. (Source: Ibid.)
Chart courtesy of Stockcharts.com
The Bottom Line For BBRY Stock
I would not be surprised to see BlackBerry make more acquisitions. With more than $2.2 billion in cash and short-term investments, Blackberry has a meaningful war chest to cherry-pick other companies that fit its new strategic vision. And, with about 44,000 patents that can be monetized through joint ventures, licensing deals, or outright sales, BlackBerry has a virtual ATM whose real economic value doesn’t appear to me to be fully represented on its balance sheet. (Source: “Virtual Patent Marking,” BlackBerry Ltd, last accessed September 5, 2016.)
BlackBerry stock could very well be at a pivot point. The transformation of the company appears to be picking up steam. So, it may not be too long before BBRY stock follows suit. The next five years could be very interesting (and possibly profitable) for BlackBerry stock shareholders.