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17 Jul

Huge Misread Of Blackberry; Apple-IBM Deal Not A Threat

by

Shares of Blackberry Limited (BBRY) plunged below psychological support at $10, Wednesday.  After 47.4 million shares traded hands, BBRY closed the day down $1.33 to $9.97 on news of an Apple-IBM deal that officially demarcates the attempt by both enterprises to enter the corporate mobile market and challenge the industry favorite – Blackberry.

With Blackberry clearly stabilizing to meet its financial obligations and maintain its formidable competitive edge in mobile security, BBRY bulls maintain that the Apple-IBM deal only serves to underscore Blackberry’s strength as a company poised to prosper from a sudden surge of public awareness of government spying and hacking.

bbry“The triple threat of bring-your-own-device (BYOD) as a dominant enterprise trend, an increasingly hostile threat environment, and the deluge of frightening revelations about privacy courtesy of the NSA is forcing enterprises and consumers to invest real money in mobile device security,” says Jeff Wilson of  Infonetics Research.  “The mobile device security software market grew 40% to cross the billion-dollar mark in 2013 and we expect it to grow to $3.4 billion in 2018.”

The vocal Blackberry bears suggest that the Apple-IBM deal is a bona fide threat to Blackberry’s preeminence in mobile security, though the fruits of that alleged threat won’t be borne for some years to come.

But are traders knee-jerking out of a potential big winner from the sale of BBRY?

Future threats or not, we strongly believe the bulls are spot on with their analysis of the perceived shakeup of Blackberry’s lucrative niche global market.  And with BBRY down strongly – following the Apple-IBM news – a pessimistic case can easily be sold to investors at this particular moment.  But, what if it turns out that. . .

Blackberry Really Looks Good Enough to Eat

Blackberry’s 7,500 patents won’t be easily thwarted by any competing entity, but that impressive number of critical patents also become the focus of an acquisition.  With valuation estimates for Blackberry’s patent portfolio reaching as high as $3B, according to Canada-based The Globe and Mail, Blackberry’s $5.2 billion market cap may be just too tempting a target to begin the bidding to entry into the lucrative business of corporate mobile security.

All it would take for a behemoth like Google and its $57 billion of cash to call a meeting and pull the trigger on the Apple-IBM move by offering Blackberry a deal it cannot refuse.

We don’t see that potential for acquisition priced into BBRY, as the market cap and enterprise value weigh in at only 1.25-times sales and $4.3 billion, respectively.  In fact, our own Jason Bond speculates that Blackberry’s 0.6% market share of mobile operating systems has reached rock bottom.

And an influx of capital and a deployment of a marketing machine of the size of Google’s can turn Blackberry’s leadership in corporate mobile security into another rapid-growth vertical that outstrips Google’s 19.1% overall revenue growth profile.

Jason Offers Blackberry Stockholders 4 (Four) Critical Points to Ponder

i)     An Apple-IBM deal won’t make the iOS meaningfully more secure.  Two-plus million lines of iOS code will be quite a chore securing anytime soon, if ever.  Contrastingly, the Blackberry bb10 runs on less than 100k lines of code.  Sounds like a minor point until the time of the first beta test.

ii)    When the market cools from the initial announcement, investors may wonder how the “Orwellian” chain of U.S.-based IBM will win over customers from Canadian-based Blackberry.

iii)  Announcing an alliance is far different from actually making a product that matches Blackberry’s security.  How many American-designed units will China, Germany, Russia, Brazil or India buy since the Snowden leaks?  Look up German Chancellor Angela Merkel’s comment about Verizon.  U.S. servers are viewed as a U.S. weapon by the economic gorilla of the European Union.  And what influence will Russian President Vladimir Putin’s and Beijing’s distrust of U.S.-based technology companies have on the  members of the rest of the BRICS nations?

iv)  If WhatsApp was worth $19 billion to Facebook, what is Blackberry worth to, say, Google?  At $19 billion, BBRY values at $36.50 per share, suggesting a more sober look at Blackberry’s relatively tiny market cap.

Technicals Suggest Strong Support at $9

The chart, below, shows that many traders could be angling trades at the $9 level on any further weakness in BBRY.  If $9 is reached, Blackberry’s market cap calculates to $4.7 billion, narrowing further the difference between the company’s market cap and enterprise value, which stands at $3.8 billion, today.  Our financial analysis suggests that a market cap of under $5 billion won’t last long, buttressing our case for the likelihood of an abrupt reappraisal (from this week’s negative sentiment and price action) among investors of Blackberry’s position in the mobile security sector and the potential value to a deep-pockets suitor.

bbry1

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4 Comments

  1. Lewey Horn

    Have spent 30+ minutes trying to get in to chat rm ! Long time member. Not there yet.

    Reply
  2. William

    Jason, I noticed you don’t trade options. Is it easier to make money trading stocks than options for a more dependable trading income? I see a lot of positive testimonials on your site and it makes me want to rethink trading. Plus I can’t even make a consistent income trading options for 6 years.

    Reply
    • Jason Bond

      Options are really hard, I rarely trade them and don’t know anyone that consistently wins trading options. I think my strategy would be considered a conservative despite trading stocks under $10. I can’t guarantee it’ll work for you but if you did Think or Swim’s paperMoney you’d be able to find out for yourself risk free – that’s my advice.

      Reply

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