BlackBerry (BBRY, Financial) shares rose somewhat from their lows in the middle of last week but still ended the week lower. The midweek selloff was triggered largely by a Goldman Sachs (GS, Financial) downgrade of the stock to a “SELL” which led many investors scrambling to dump the stock. However, given the recent news surrounding the company and the depressed prices due to last week’s selloff, there is a compelling case to be made to pick up the stock now.
Tie-inwith other tech players
Since late last year, BlackBerry has announced partnerships with some of the big players in the technology industry, such as Samsung Electronics Co Ltd (SSNLF, Financial), International Business Machine Corp (IBM, Financial) and Google Inc. (GOOG, Financial), that provide the company a wider reach for its management and security platform for mobile devices. Each of these separate announcements has been rewarded by the investors, with the stock price moving up as a reaction. This also bodes well for BlackBerry in the long run since it shows the company can stay relevant in the software field even if its smartphones don’t make a splash in the hardware market.
Focus on software
It was also in November 2014 that John Chen took over as CEO from Throsten Heins and BlackBerry has since shifted focus to software and mobile device management. Earlier this month, it announced “plans to offer a cloud-based version of its device management platform BES12, a move that will make the service more accessible to small and medium sized businesses that need to secure devices on their own networks.”
Given the partnerships with other technology companies, BES12 works with not just BlackBerry devices but also on devices running on Google’s Android, Apple Inc.’s (AAPL, Financial) iOS as well as Microsoft Corporation’s (MSFT, Financial) Windows mobile platform. The fact that the new offering announced at the Mobile World Congress in Barcelona is Cloud-based also makes it more affordable by removing the need to set up an in-house network, thereby potentially attracting a host of small and medium-sized businesses. Device management and security platforms have typically been used by larger companies that have the wherewithal to install and manage their own servers, so this Cloud-based service will help the company expand its customer base.
The BBM advantage
The BlackBerry Messenger (BBM) service recently crossed the 100 million downloads mark for its Android version. According to the company, the year “2014 saw over 140 million new registrations to BBM from iPhone and Android devices. Additionally, 70% of the users are active daily.” According to an analyst at Seeking Alpha, “if BlackBerry continues to build its BBM user base the BBM messaging service may be worth more than entire market capitalization of the company today.” While that may not necessarily be the case, the popularity of BBM is not waning any time soon and is a definite plus when it comes to valuing the company.
Goldman Sachs downgrade
In its downgrade of BlackBerry to “SELL”, the primary reason given by analysts at Goldman Sachs is that it expects revenues from the software segment to fall short of the guidance of $500 million for FY16 given by the company, and to instead come in around $426 million. However, for a company that has had negative revenue growth the last few years, a rebound with revenue growth close to 75% YoY is no mean feat. There doesn’t seem to be any fundamental issue with the company or its business to warrant a downgrade. Hence, the current drop in the stock price based on this downgrade is a good time to buy this stock.
