If I went out on the street today, and asked random individuals if they would like to invest in Research In Motion, currently doing business under the name BlackBerry, I’m confident I would be greeted with laughter and a varying degree of snide remarks. If I were to base investment decisions solely on public opinion, then the makers of BlackBerry would be at the bottom of my list of companies to invest in. They would be right beside my sock drawer and that one unfortunate pyramid scheme I once sat in on. Thankfully, I use other metrics, as well, when considering a proper investment decision.
I wish I could tell you that BlackBerry is back on top, enjoying roughly 50% of the smartphone market and 20% of the global mobile market as it did in 2009. Those were the days for the Waterloo-based corporation. BlackBerry was enjoying gross margins close to 50% of its revenue, and its net income was not only in the positives, but growing at a phenomenal rate. However, within three years, the world saw the once-unstoppable company hit a small speed bump, or, depending on how much you had invested in the company, the Grand Canyon. BlackBerry’s market share in the greater smartphone market fell to 6.4%, meaning they lost over 87% of the market they once controlled. In their 2012 financials, their gross margins had declined by almost 39% from their 2010 statements. With revenues falling, and costs rising, BlackBerry reported a loss in 2012. This loss, although not an excessively large hit to the company financially, indicated stagnant if not receding growth, and crushed most of the remaining positive public outlook on the company’s future.
So now that I’ve told you that the public’s opinion on BlackBerry, as an investment decision, is about as good as their opinion that Canada won’t see snow this winter, and that BlackBerry’s financials and market share have seen a massive decline, would you invest? What if I told you that within the next year would be an optimal time to invest? I will state openly that I am not crazy; there is a method behind my decision.
I’d like to explore the very apparent negative facing many potential investors in BlackBerry: its stock price. In 2012, it wasn’t uncommon to hear that BlackBerry’s stock was below $7 per share, a far cry from 2008 when it was trading at over $140 per share. I know what you’re thinking: who could recover from such a serious decline in stock price? However, in recent months, their stocks have been recovering, trading at a high of over $17 per share in January of 2013, and an average of about $14 per share for 2013 so far. In the past week, the stock has taken a dive to just over $10 per share; however I must afford this to the market’s expectations on their new smartphone launches, the Z10 and Q10, being too high and thus slightly overinflating the stock. I do believe this heavy decline is an overreaction in the market, and the stock will see an increase over the next three to six months. I can say with the utmost confidence, that BlackBerry will not see stock prices like it did in 2008. It will, however, develop and maintain steady growth.
There are two reasons that I believe BlackBerry can create stable growth in the stock market and their control of the mobile smartphone market. The first is that new tech releases take time to fully reach the public and allow the company to reap those benefits. This can be seen in the BlackBerry Z10 and Q10, which have not vaulted the company back to its 50% smartphone market share. How could we even think that the two phones would have a significant impact in the 5 and 2 months (respectively) that they’ve been in the market? As seen with the iPhone, Samsung Galaxy, and even the tablet market as a whole, growth in the market takes time. The Z10 and Q10 becoming up-to-date with smartphone technology – a step that BlackBerry should have taken years ago – coupled with a solid operating system and a growing app store, should allow BlackBerry to see stable growth in the smartphone market.
The second reason that I believe BlackBerry will see progress can be found by reviewing their recent financials. In their 2013 first quarter report, their gross margin was up 33% from their 2012 first quarter report, and their losses, as a whole, have shrunk by 84%. These are two solid indicators that growth is in the future for BlackBerry. You have to remember, these positive year-over-year financial changes are only for the first quarter of 2013, where the Z10, and especially the Q10, had little time to fully impact the market and allow BlackBerry to smooth out any technological bugs that inevitably occur with any new hardware and operating system. I can see only improvement for BlackBerry in the future so long as they keep spending their money where it is needed, in their research and development department.
Investing is a tricky situation. On one hand you have safe investments where the return is minimal. On the other, you have riskier investments where the reward can be large (however, so can the loss). BlackBerry is not as risky as the public perceives it to be. Sure, in 2008, their stock was hugely overinflated, even for the amount of growth and control in the market they were showing, but hindsight is always 20/20. BlackBerry has revamped their company, focusing more on up-to-date technology and software. They still have a ways to go to regain any sizable portion of the smartphone market, especially with Android and Apple to compete with. But BlackBerry has begun to innovate. They have kept their appeal to the most stringent of professionals, while growing their casual and social performance to the public. With their stock at a reasonably low price, the next year would be an ideal time to invest before their growth takes off and the price inflates. In time, Blackberry will see reasonable and stable growth in the market, and, one day, when someone is asked if they would consider investing in BlackBerry, their answer will likely be “I already have.”
Photograph of the BlackBerry Q10 courtesy of Janitors on Flickr