BlackBerry to Zero (Just Not Yet)

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

Risk and rollercoasters. These are what come to mind when I think of BlackBerry (NASDAQ: BBRY).

Entrepreneur turned venture capitalist Mark Suster recently described what he believes to be the rising driving force in the market. He said:

"I believe the greatest Internet companies created over the past 15 years have been “deflationary” meaning they are driving down the prices of goods & services. They are also driving down the margins they make and are offering products that are initially lower functionality than their competitors.”

He makes a great point. Just think about how Amazon, Netflix, or Facebook transformed their respective industries. Low prices, high traffic, and customer focus.

BlackBerry’s greatest strength

Even with decreasing market share, BlackBerry’s balance sheet as of March 2013 proves that the company is staying afloat.

<img alt="" src="http://g.fool.com/editorial/images/49184/book-value_1_large.PNG" />

I thought BlackBerry was dead. But, compared to Google (NASDAQ: GOOG), Apple (NASDAQ: AAPL), and Microsoft (NASDAQ: MSFT) Blackberry is a great (for now) buy. It has no debt, nor will it liquidate in the near future. Further, as partly seen in the above data, BlackBerry “has a minimum $12 worth of value sitting on its balance sheet today.” However, if BlackBerry doesn’t see its BBM operating system, Z10, and Q10 sales rapidly increase, it is in trouble.

<img alt="" src="http://media.ycharts.com/charts/798d1214f294001da0ae975fd6e79986.png" />

BBRY Book Value Per Share data by YCharts

Even with three new devices on the horizon, BlackBerry’s cash base is depleting fast. Too fast.

BlackBerry’s lifespan is running out

Measuring the firm’s defensive interval shows just how vulnerable it is compared to market leaders. The ratio reveals how many days each company can operate with its current assets without having to utilize its long term assets. And competing with giants, BlackBerry does not have long.

<img alt="" src="http://g.fool.com/editorial/images/49184/book-value_2_large.PNG" />

Additionally, some reports expect that Nokia’s (NYSE: NOK) Lumia 928 is selling nearly twice as frequently as the BlackBerry Z10 on Verizon’s network in America. And, Nokia is offering older, lower priced phones in emerging markets, securing additional market share. Suster would be pleased. Nokia’s mobile software utilization agreement with Microsoft also seems to be lifting both firms further above BlackBerry.

BlackBerry’s worst nightmare                                                                                                                                                                                                                                  

BlackBerry already lost many corporate customers due to the Bring Your Own Device movement that empowered employees to choose their own phone. Additionally, by rolling out its new operating system, BlackBerry lost customers. Why? It can take between four and six months just for a company to adapt to the new system. So companies that received the system in January may just now becoming familiar with it. These are not deal-breakers, but charging a high price is.

Nearly 70% of literate adults will have a smartphone in four years. As Suster said, lower prices and more networks are driving the growth. As a result, BlackBerry cannot compete. Proof of concept is within India where Sunil Lalvani, a BlackBerry managing director, recently stated that the company is losing market share to Nokia and Microsoft. Why? BlackBerry does not sell a unit below $100. Further, as evidenced by the following chart from Benedict Evans, Apple already dominates the high end market.

<img alt="" src="http://g.fool.com/editorial/images/49184/apple-samsung_large.PNG" />

As a result, BlackBerry is being pinched out of business. Unless CEO Thorsten Heins has a trick up his sleeve or new products generate large revenue numbers, BlackBerry may become obsolete in the coming years. Even though it boasts an extremely strong balance sheet, its business model must change or improve if it wants to survive.

Suster is right

Google is the king of the mobile industry. Its Android platform continues to attract customers and set industry standards. In short, Google foresaw and mastered the move toward low prices, more networks, and customer preference. Google buying Waze for $1.3 billion seems ridiculous, especially with Google Maps. However, the tech giant wants to increase user engagement, keep Waze out of competitors’ hands, and add additional features. BlackBerry should learn from Google.

<img alt="" src="http://g.fool.com/editorial/images/49184/global-share_large.PNG" />

BlackBerry’s only chance

I used to think BlackBerry was going to zero. But, it is not. For now, it is even trading below its book value. For this reason and because of its new products, BlackBerry has bought some more time. But if it doesn’t change it ways, it will soon be on life support. 

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Brendan Marasco 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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