In the span of about five years, BlackBerry (BBRY) rose to the peak of the US mobile phone market and then crashed to the bottom. Before 2011, BlackBerry held a larger percentage of the global market share for mobile phones than both Apple (AAPL) and Google (GOOG). In fact, for FY 2009, BlackBerry held 50% of the global market share for smartphones. However, the company's once indispensable role in the business world was replaced by these competitors, as BlackBerry's services were plagued by instability. Furthermore, BlackBerry’s venture into the realm of tablets was an utter failure, as it was unable to keep pace with innovation standards set by Apple and Google. By 2013, BlackBerry was essentially left for dead, as its global market share for smartphones dropped from 50% in 2009 to less than 1% in 2013. This was accompanied by an equally significant drop in BlackBerry’s stock price, from its high of $140.36 in 2008 (before the crash) to $5.44 in December of last year.
This is not to say that BlackBerry was worthless; in fact, BlackBerry ownership received a number of buyout offers that aimed to take the company private, the highest of which came from Fairfax Financial at $4.7 billion, or $9 per share (BlackBerry signed a letter of intent agreeing to the deal in September 2013, but the deal was eventually scrapped). In November 2013, Fairfax Financial instead agreed to a $1 billion cash injection in an attempt to help bolster the company’s standing with investors and provide additional capital for research and development. Now in 2014, BlackBerry is once again showing signs of life.
Since the beginning of the year, BlackBerry's stock price has increased 54.7% from $5.44 to a recent high of $12.18. For perspective, over the same period, Apple has increased 18.81%, while Google has only increased 4.59%. Of the 30 tech stocks in CNN Money’s Tech 30 Portfolio, which is comprised of the “most important tech companies in the world,” only Electronic Arts (EA) has a better year-to-date gain (56.8%). Some of the companies that BlackBerry is currently outperforming include stock market darlings Facebook (FB), Netflix (NFLX), and Microsoft (MSFT). Although impressive, BlackBerry's volatile stock performance history has left investors skeptical: is BlackBerry's comeback simply a byproduct of excellent market conditions, or is the company here to stay?
With such significant returns in such a limited timeframe, investors must now ask two critical questions of BlackBerry: what factors are driving its recent success, and can these factors translate into long-term growth?
Firstly, it is important to note that the majority of BlackBerry’s remaining value no longer lies in its smartphone lineup. Instead, BlackBerry’s most valuable asset is its patent portfolio, which is worth an estimated $2-3 billion. Thus, BlackBerry’s comeback will not be the result of a return to glory in the smartphone market, but rather by investing, innovating, and licensing (the company’s valuable patents).
One of the most recent examples of this business strategy is BlackBerry’s acquisition of a minority stake in the healthcare technology firm NantHealth. Through the use of BlackBerry’s patented QNX operating system, the two companies hope to improve upon NantHealth's cloud-based technology, which aims to provide hospitals with a number of technological services (such as decision assistance for doctors and nurses, genetic analytics, and the harnessing of vital sign transmissions). This partnership is important for a number of reasons. Firstly, NantHealth’s use of the BlackBerry QNX operating system demonstrates the versatility of the platform, which was originally designed for smartphones. In addition, QNX is also praised by NantHealth, among others, for its security and reliability. In the world of medicine, where technology can literally be the difference between life and death, hospitals must have complete trust in their operating systems. If NantHealth continues to expand (the systems are currently installed in 250 hospitals around the world), and successfully improves the nation’s medical infrastructure, BlackBerry will find additional opportunities to integrate its QNX operating system into the healthcare sector, and beyond.
Although I believe BlackBerry’s future heavily relies upon the successful integration of its patented technologies, into existing systems, and the creation of new systems, this is not to say the company would not also benefit from a gradual re-entry into the global smartphone market.
Once a household name, more predominant than Apple, BlackBerry may once again rise to prestige. The company recently announced its release of the BlackBerry Passport, a smartphone designed with business in mind. Maintaining the BlackBerry tradition of unique keyboards, the company promises that the Passport will facilitate multitasking, specifically around email, better than any other device that solely relies upon a touchscreen. The success of the Passport is yet to be seen, but I believe it is a step in the right direction for a company that has recently struggled with mobile innovation.
Although BlackBerry appears to be an opportune investment, traders must not forget that BlackBerry is still in the earliest stages of rebuilding. Last year BlackBerry reported an annual earnings growth of -808.94% (yes, negative) and earnings growth of -38.15%. Although the company is extremely cheap, with a P/E ratio of 2.1 (far below the industry average), I advise investors hold off on putting money into BlackBerry until the company demonstrates solid financials for more than just six months. Overall, I believe that BlackBerry has the potential to be a solid investment decision; however, it has yet to demonstrate meaningful fundamentals that justify buying the stock.