Does BB10 Make BlackBerry a Buy or Sell?

Nauman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Apple (NASDAQ: AAPL) had net tangible assets of approximately $122 billion at the end of first-quarter (Dec. 28, 2012). Based on where the shares are currently trading, this will give the company a price to net tangible assets ratio of 3.4; Microsoft trades at a price to net tangible assets ratio of 4.3; and then we have Salesforce.com, which trades at a whopping 71 times net tangible assets.

But at a price to net tangible assets of around 1, it seems that BlackBerry (NASDAQ: BBRY)​ is priced as if it's about to undergo Chapter 7 liquidation proceedings. Is this ratio alone be enough to rationalize investing in BlackBerry?

Arguments from BlackBerry bulls

For the quarter ended Dec. 1, 2012, BlackBerry reported an impressive cash flow of almost a billion dollar and a steady subscriber base of almost 80 million customers. Though results were affected by the rumored launch of BlackBerry 10 devices, the Z10 and Q10, business from BlackBerry's BB7 phones were in-line with expectations.

Bulls claim that the BlackBerry 10 operating system has a bright future ahead. BlackBerry desperately needed a reboot of its OS to compete with the likes of Apple's iOS 6, Google's (NASDAQ: GOOG) Android Jelly Bean and Microsoft's Windows Phone 8, all of which had outstripped the outdated BB7 platform. BlackBerry 10 offers up all the functionality you'd expect, wrapped up in a package that sets it apart from the likes of Android and iOS. The BlackBerry 10 devices boast fast browsers, smart cameras, and unlike previous BlackBerry models, have entered the market with a large application library. Popular services such as Skype and the game Angry Birds have been added as well.

Moreover, initial media reports about the Z10 release have already proved that sales are off to a great start. No reasons not to believe that small qwerty keyboard device Q10, which is expected to be available for sale in mid-2013, will also be a success. The success of both the Z10 and Q10 would potentially bring billions of dollars in net income for BlackBerry, and consequently could double the share price from where it's currently trading.

Arguments from BlackBerrry bears

The biggest concern that BlackBerry bears present is that the BB10 ecosystem will not generate as much developers interest as the iOS or Android do. Apps had been a focal point even before the launch of BB10, with BlackBerry assuring everyone that many developers are creating and porting applications for the new platform.

Google's Android has now captured 70% of the global smartphone market. In Europe, Android has increased its market share from around 52% in 2011 to over 60% in 2012. Moreover, on the manufacturing front, Samsung's share also rose during the same period. As Samsung continues to hold Europe's number-one smartphone manufacturer title, Android's market share there could go up further. Android also enjoys dominant positions in China and Brazil, with more than 62% of the market share in both of the countries.

Moreover, in order to reduce its exposure from just having one source of revenue -- its ad-business -- Google recently acquired Motorola Mobility. The deal will further strengthen Google's Android platform and help the firm compete in the ever-changing technology landscape. This step will also lead to Google's entry into the hardware market, in direct competition with Apple and Samsung. Using Motorola Mobility, Google plans to launch X-Phone and Nexus 5 with a newly updated Android 5, which would further steepen Android's global growth curve in the days ahead.

On the other hand, doubtlessly the most challenging market for BlackBerry new phones will be here in the US -- where it will compete with Apple products. Recent reports have suggested that Apple iOS has now more than 50% of the U.S. market share, fueled by the sales of iPhone 5, which became available in late September 2012 -- Apple sold almost 48 million iPhones in the fourth quarter of 2012.

Despite its global market share falling to just 15% at the end of 2012, Apple's iOS 6 devices are still more commercially successful -- iOS 6 has more than 60% share of the ad impressions market in the US. This compares to Android's ad impression share of only 28% -- excluding low-end handsets. The US ad impressions market is currently a clear leader with four-fifth share of the total global mobile ad market. Moreover, Apple's iPads are still the market leaders with the highest effective cost per thousand impressions in the entire industry.

But in all this time, BlackBerry's business has gone nowhere but south. BlackBerry is now far behind in the US, with a mere 2 percent market share in the fourth-quarter of 2012. Moreover, its global market share stands at less than 4 percent, down from more than 20 percent three years ago. Consequently, BlackBerry shares have tumbled along with the company's market share, and the stock is down almost 90 percent from its 2008 peak.

<img src="http://media.ycharts.com/charts/1fc020df80de45e2ee5b9fb0e2ae7409.png" />

RIMM data by YCharts

Foolish Bottom-line

Based on several financial metrics, shares of BlackBerry appear quite cheap. But, I believe it's far too early to make the call on whether or not BlackBerry 10 will succeed, and therefore if the stock will go up or down from here. BlackBerry Z10 has been given the significant task of reigniting the ailing fortunes of BlackBerry, but it's the software the handset is running that will eventually decide the company's fate.

So, if you really think BB10 is the next big thing and has what it takes to compete against Apple iOS 6, Google Android Jelly Bean, and Microsoft Windows Phone 8, the current valuation shouldn't make you lose sleep--it's whether or not the OS succeeds that should keep you up. I reckon BlackBerry 10 has an uphill battle from here, so I remain cautiously optimistic about that.


MaaniValueGuru has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 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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