- BlackBerry's revenue has declined 83.5% from Q4 2012.
- John Chen has managed to slow the decline by cutting costs, launching Passport and focusing on Enterprise Solutions.
- BlackBerry stock analysis - Is a turnaround possible?
Recently in his blog post Prof. Aswath Damodaran of NYU Stern School of Business classified BlackBerry (NASDAQ:BBRY)) as a "Walking dead or a Zombie company" which has a broken revenue model and is out there to destroy investor’s wealth. And till recently BlackBerry has done everything possible to earn this tag. Revenues declined from $5.5 billion in Q4 2012 to $916 million in Q2 2015 for BlackBerry (See: Blackberry revenue figure for 2014 Q2), a decline of 83.5%. Blackberry stock price fell from $66 to $11 in the same period. BlackBerry’s market share has also declined drastically. In the latest quarter the company sold just 2.1 million devices compared to quarterly sales of 15 million devices in 2010.
To prevent the indiscriminate destruction of investors’ wealth, the board brought in John Chen, famous for executing a turn-around at Sybase, as the CEO in November 2013. Since then the company has stopped bleeding, or at least reduced the rate at which it loses money. However, BlackBerry is still far from the position it enjoyed in its heydays. BlackBerry has made right noises and decisions in last few months. The company has cut costs, launched new models and has increased its focus on enterprise solutions. Let us do a Blackberry stock analysis to see if the company can revive.
CEO John Chen started his turnaround plan for BlackBerry with an attempt to rationalize costs. BlackBerry outsourced the manufacturing of handsets to China based handset maker Foxconn, which manufactures handsets for Apple. The out sourcing reduced the inventory management burden from BlackBerry. According to WSJ, in two quarters preceding the BlackBerry's outsourcing deal with Foxconn, it had taken a hit of $2.1 billion in inventory charges and would have continued to so in future quarters if not for this outsourcing deal. BlackBerry also trimmed the number of models it makes.
BlackBerry’s Passport to Success?
After losing billions of dollars in five successive quarters, Blackberry’s handset segment turned profitable in the previous quarters. And this was before BlackBerry launched “Passport”, a unique square shaped handset with physical QWERTY keypad in September. The phone has been a hit with BlackBerry users, with the handset getting sold out within few hours on BlackBerry’s and Amazon.com websites. BlackBerry had initially placed 200,000 units for sale. Post the initial sales, the handset has been “out of stock” several times in last months, indicating the popularity of the product. A post on Seeking Alpha estimates that Black Berry has sold around 600,000 units of Passport. 600,000 pieces will result in a revenue of $300 million, around one third of the revenue it earned in previous quarter. BlackBerry is slated to release “Classic” a BB10 handset later in the year. The phone is expected to further boost BlackBerry’s handset sales.
Focus on Enterprise Solution
In an investors meet on Thursday, Mr. Chen announced “We’re not about phones this time, we’re about softwares”. The company is going to launch a new software BES 12 later this month. With BES 12 BlackBerry aims to be secure enterprise platform for all smartphones including Apple and Samsung. According to a post in Forbes, BlackBerry has inked a deal with Samsung to integrate BES 12 platform with Knox software used in devices like Galaxy S4 and Note. BlackBerry is targeting $500 million in revenues from enterprise security solutions and it seems to be on the course to achieve it. BlackBerry also plans to monetize BBM.
The Market Responds
The share price has almost doubled from $5.75 per share in December 2013 to $12 per share. BlackBerry has reduced its EPS loss from -$0.67 to -$.02, consistently beating the analysts’ estimates in last three quarters.
In last one year BlackBerry has managed to reduce its losses, has beaten analyst estimates and made the right noise. The company has cut costs and launched a new model which has gained popularity. BlackBerry has fixed its broken revenue model with focus enterprise mobility solutions and softwares. The market has rewarded the company’s turnaround efforts. Share price has doubled since December 2013. In his blog Prof. Damodaran conceded that there are examples of “rebirth and reincarnation” of zombie companies. Can BlackBerry become one of those examples?