3 Times Better Than The Competition?
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I can't even count the number of times I've been wrong in the stock market. However, I try to remember what Peter Lynch once said. He said you'll never be right 100% of the time, but even if just 60% of your picks go the way you expect, you can be successful. I read a lot of earnings reports, and with each one I try to keep an open mind. With BlackBerry's (NASDAQ: BBRY) recent earnings, I find myself in the strange position of suggesting this company has a chance to be a decent investment.
What's Past Is Past
Adopting a “be here now” attitude with each earnings report is sometimes difficult, as I honestly hate being wrong. That being said, my disdain for BlackBerry shouldn't be a secret. The company's refusal to accept that customers wanted a good touchscreen phone was baffling. BlackBerry's slow time to market with BlackBerry 10 frustrated even the most fanatical fans. However, as they say, time heals all wounds, and there are several positives in the company's current earnings.
I've heard the argument before from BlackBerry investors that their company doesn't have to take market share, but instead they need to make sure they produce good results on a global scale. The theory is, a company might lose market share because some of their competition is growing faster, but this doesn't mean they aren't growing.
I'm not here to debate the merits of the BlackBerry 10 system or smartphones. What I will say is, now that they are finally here, buyers can now make their choice. Apple (NASDAQ: AAPL) seems to constantly be dealing with this product anticipation issue. Customers aren't dumb, if they know that the iPhone 5S or 6 will be out in just a few months, they aren't likely to run out and buy the existing model. Microsoft (NASDAQ: MSFT) saw this happen at the end of last year, with the release of Windows 8 creating a slowdown in Windows Phone purchases.
It is particularly important that BlackBerry is able to at least hold serve in market share now that their latest products are beginning to hit the market. Last year, BlackBerry held a 4.3% global market share. While this doesn't come close to the 75% market share for Google's (NASDAQ: GOOG) Android, or the 14.9% market share for iOS, it was still good enough for third.
That being said, BlackBerry has to watch its back, because Microsoft increased its global market share from 1.2% to 2% over the last year. This 2% doesn't sound like a lot, but this represented a 140% increase in shipment volumes versus a 34.7% drop in volumes at BlackBerry.
Why Could Third Place Be Just Fine?
The first reason to consider BlackBerry is, the sheer size of the smartphone market means even the third and fourth biggest players should be able to do very well. According to IDC research, in 2013 there may be as many as 301 million smartphones sold in China, 137.5 million in the U.S., 35.5 million in the U.K. and 444 million in other parts of the world.
This research actually plays pretty well into BlackBerry's strengths, as the company's sales come from areas other than China and the U.S. In fact, in the current quarter, BlackBerry got the lions' share of sales from Europe, The Middle East, and Africa.
Of the 444 million smartphones expected to be sold outside of China, the U.S. and U.K., if BlackBerry took just 4.3% market share, this would equate to over 19 million smartphones. If we add in the same market share in other parts of the world, this adds another 20.38 million. With a potential total of over 39 million smartphones to be sold, this would work out to almost 10 million a quarter. Considering BlackBerry shipped 6 million in the last three months, this would represent a significant increase.
They Do These Two Things Better Than The Competition
In the field of technology, one thing that has been proven over and over again is companies that spend on research and development generally prosper. This gives us a second reason to consider BlackBerry. The company is outspending their competition on R&D.
Some have argued that Apple's recent stock decline is in direct correlation to the company's relatively small expenditures on R&D. Theoretically, lower R&D spending means less innovation. In the company's current quarter, Apple spent just 1.85% of revenue on R&D. By comparison, Microsoft spent 11.78%, Google spent 13.30%, and BlackBerry led the way with 14.3%.
The third reason to consider the stock is, the percentage of cash and investments relative to BlackBerry's market cap. is nearly absurd. At current values, Google has the lowest percentage of cash and investments to market cap. With about $46 billion in cash, versus a market cap. of about $257 billion, 18.12% of Google's market cap. is the cash and investments on the balance sheet.
Both Microsoft and Apple have a high percentage of cash to market cap. at about 28% and 37% respectively. However, BlackBerry beats them all with a percentage of 40.1%. While investors could ignore this high percentage if the company was burning through cash, last year BlackBerry produced $1.89 billion positive free cash flow.
BlackBerry finally has released BlackBerry 10 and the company doesn't need to be number one or two to be a good investment. With management spending on R&D and a ton of cash on the balance sheet, the stock looks poised to outperform. In the end, I have to change my tune on BlackBerry. The company might not be the best in the smartphone business, but based on these numbers, the stock seems cheap at current levels.
Chad Henage owns shares of Apple and Microsoft. 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!