Analyzing Blackberry

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Why Sell Blackberry

Blackberry (NASDAQ: BBRY) was a major player at the beginning of the smartphone industry and had a huge market share in the smartphone market. Today though, Blackberry is down to about a 5% market share.

I have read and watched reviews on the new Blackberry Z10 phone that’s supposed to save the company, and all I can say is I am not impressed. On one review, the casing for the phone actually came loose while taking it out of the box. In addition, the user interface was not as responsive as iOS or Android, and to be honest it offered nothing that either of the other two phones did not already have.

I have used Blackberry phones in the past, but today, I consider their phones something I’d get for free when signing up for a two year contract. Five years ago, the flip phones and candy phones with physical keypads were the cheapest phone people could buy. Today, I would consider a Blackberry phone as the cheap flip phones of today.  

Lack of Innovation

The reason I believe Blackberry failed as a company is largely due to their lack of innovation. They had the same types of phones for many years and only updated them for stylistic purposes. Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) on the other hand both updated their phones’ looks as well as their user interfaces. The iPhone is sleek and sexy, and Android is hugely customizable in every aspect. The Z10, on the other hand, isn’t as sexy as the iPhone, and is not as customizable as the Android system. Blackberry never innovated at the same pace as Apple or Google, and the Z10 is a perfect example of that by not bringing anything new to the industry.

Blackberry’s Small Moat

I do not believe Blackberry has any competitive advantage over anyone else in the industry. Blackberry’s moat has been consistently breached by both Apple and Google with the iPhone and Android devices. The iPhone is silky smooth, has hundreds of thousands of apps, and is part of an ecosystem that works great with people’s computers, tablets, and TV’s. Google also has a great operating system on their phones and tablets, and has a cloud interface unmatched by anyone (even Apple). Blackberry’s ecosystem is mainly with the corporate world, yet both Apple and Google are making their phones more secure and customizable for enterprise systems.

So what has Blackberry got going for them that nobody else does? I can’t think of anything, and because of that, other companies are going to topple their already crumbling castle.

Management

Blackberry’s executive team is putting it all out there and is really trying hard to save the company by releasing a new phone, changing the name, and advertising the brand. I don’t think it’ll work. The phone has nothing over the iPhone or Samsung’s Galaxy S3, the name change will cost huge amounts of money to market, and the brand is synonymous with old, cheap phones that very few people use. Management is trying, but to me it’s all over.

Valuing Blackberry

Blackberry is losing money, and quickly. Over the last 12 months, they’ve lost $846 million, with an EPS of -1.66. I would usually end the discussion right there, but let’s say that the Z10 actually does produce some sort of profit. I can’t even give it an actual growth rate because they’re losing more and more money every quarter, but for arguments sake I’ll throw around some numbers.

If Blackberry makes a huge recovery, and for arguments sake gets an EPS of $2, growing the company at 10% with a PE of 20 (historical average over the last 5 years) will yield a future stock price of $71.51 five years from now. Let’s keep in mind though, Blackberry isn’t making money, and it could be a long time until they get an EPS of $2, and growing the company at 10% is really just a guess cause again, they’re not making money.

So what’s the point? The level of uncertainty in the future of Blackberry should prevent anyone from becoming an owner. If the Z10 catches on, which I don’t think it will but if it does, and Blackberry starts making a profit, the current price point may be tempting. At $16 a share as of this writing, that will not last long if Blackberry does start earning a profit. Thanks for reading.

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aleceiber owns shares of Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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