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Investment Overview for BlackBerry (NYSE:BBRY)
Below are key drivers of BlackBerry's value that present opportunities for upside or downside to the current Trefis price estimate:
- BlackBerry Mobile Phone market share: BlackBerry's market share increased at a fast rate from less than 1% in 2007 to over 3% in 2011, as per our estimates, as smartphone penetration grew. However, during 2012 and 2013, BlackBerry's market share fell to less than 2% and 1% respectively, as the company's newest BB10 based offerings struggled to gain traction owing to competition from Apple and Samsung. Going forward, we expect BlackBerry's market share to decrease to below 0.5% by the end of Trefis forecast period. This is mostly due to the competitive nature of the mobile phone landscape, where iPhones and the Android-based smartphones are becoming increasingly popular. BlackBerry's niche position within the enterprise is also under threat as Google and Apple have been focusing on improving their enterprise mobility offerings. BlackBerry had been pinning its hopes on new handsets such as the Z3, Passport and Classic to drive a turnaround. If BlackBerry is successful in boosting handset sales and is able to grow its market share back to around 1.5% by the end of our forecast period, there could be an upside of about 40% to our estimate for the stock. On the other hand, if BlackBerry fails to do so and its market share approaches 0 by the end of our forecast period, there could be a downside of around 10% to the Trefis price estimate for the stock.
- Software Revenues: BlackBerry's software revenues declined from around $283 million in 2010 to about $242 million in 2013 as many of the company's offering were tied to BlackBerry devices that were rapidly losing market share. However, since 2013, the company has adopted a cross platform strategy for its BES software, supporting Android and iOS based smartphones, in a move that should increase its addressable market considerably. While software revenues fell further to about $223 million in 2014 as the company launched a customer acquisition program called EZ Pass, we expect revenues to grow significantly in 2015, as monetization improves. BlackBerry has also been focusing on selling value-added software and services to the enterprise, besides focusing on increasing revenues from its BlackBerry Messenger and QNX embedded software franchises. We forecast that the company's software revenues will rise to about $900 million by the end of our forecast period. If the company is able to drive significant adoption of its BES 12 platform while monetizing its smaller assets (BBM, QNX, Movirtu, Secusmart) taking software revenue to about $1.2 billion, this could increase our price estimate by 10%. On the other hand if revenues only grow to about $700 million, it could result in a 10% decline in our price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for BlackBerry at the top of the page.
BlackBerry is a mobile communications company that sells smartphones and software and services that are largely targeted at the enterprise market. The company's hardware business includes a portfolio of mostly premium QWERTY and full-touch smartphone products. BlackBerry Enterprise Server - the company's enterprise mobility management solution - consolidates mobile device management (MDM), security, infrastructure and application management.The company also offers a variety of software and services, including BBM, which is a mobile messaging service and QNX software for embedded systems.
BlackBerry's software division contributes the most to the company's value for the following reasons.
Growth in the mobile device management space
Mobile security and enterprise mobility management is becoming an increasing focus area for companies, given that employees are using smartphones and tablets for an increasing part of their personal and corporate computing needs. Issues such as data theft, electronic eavesdropping and the increasing prominence of the “bring your own device” trend have made enterprises and mobile companies place a greater emphasis on mobile security and device management. According to Radicati Group, a market research firm, the mobile device management market is expected to more than quadruple to $5.75 billion by 2018. Data security, encryption and device management have typically been Blackberry's strong suite and the company's BlackBerry Enterprise Server (BES) software is likely to see meaningful growth as the market expands.
Cross platform support for BES will increase addressable market
BlackBerry introduced cross platform support for Android and iOS devices with BES 10. This is likely to help to expand the addressable market and user base for BES meaningfully, given that iOS and Android devices together account for over 90% of the smartphone market, compared to BlackBerry which holds under 1% market share.
Niche Assets Can Add Meaningful Upside
BlackBerry's software division also houses many of the company's niche and sometimes overlooked assets such as QNX, Movirtu and Secusmart. QNX embedded software could find a meaningful upside if BlackBerry is able to capitalize on the growing Internet of Things trend. Secusmart, which provides high-security voice and data encryption and anti-eavesdropping technologies, could also prove to be another valuable asset as there have been increased global concerns over electronic eavesdropping, surveillance and data theft.
Higher Margins For Software
Being a service based division, it has higher margins than the BlackBerry hardware division. While BlackBerry's recent travails have caused smartphone gross margins to fall to the fall considerably, the software division offers margins upwards of 80%.
Increasing Smartphone Demand and Competition
While BlackBerry is widely considered to have made the first smartphone, Apple and vendors running Google's Android software have run away with the market in recent years. BlackBerry’s handset business has seen a precipitous decline over the last few years. The company’s global market share has fallen to just 0.5% ( in terms of smartphone operating systems) from close to 14% three years ago, according to IDC. BlackBerry is pinning all its hopes on BB10 OS and new hardware such the BlackBerry Passport and Classic. The QWERTY-based Classic and Passport models will appeal to traditional BlackBerry lovers, and could help the company retain its core user base of government and enterprise users.
Focus on Software
Given its current woes in the handset space, BlackBerry has been reworking the strategy for its software business to drive a turnaround.
BlackBerry introduced cross platform support in BES 10 in order to capitalize on the growing “bring your own device” trend (BYOD), providing support for rival platforms including Android and iOS. The company also invested considerable resources in developing BES 12, which unifies support for BES 10 and BES 5, making it easy for organizations to operate both BB7 and BB10 based devices on a single infrastructure.
BlackBerry has also looking to attract more customers to its BES 10 and BES 12 platform through its EZ Pass program, which allows organizations running earlier versions of BES or competing Mobile Device Management (MDM) platforms to switch to the BES 10 and BES 12 offering for free. The company intends to monetize these users by eventually charging them for technical support and by encouraging them to upgrade to a premium version of the service that offers better security features.
BlackBerry has been looking to revitalize its BBM messaging service by opening it up to rival platforms such as Android and iOS. BBM has some advantages over rival applications, including security and a proven infrastructure, voice and video calling options as well as channels that allow brands and celebrities to connect with their audience. The cross platform strategy was off to a reasonably strong start, with its active user base growing from about 20 million since the cross platform launch in 2013 to about 91 million users as of Q2 CY 2014.
Technology Focused Acquisitions
BlackBerry has made conscious efforts in the recent past to improve its product portfolio, having made quite a few technology-focused acquisitions such as QNX, Secusmart and Movirtu.
BlackBerry acquired QNX in 2010, with a view to enhance its product portfolio and use the real-time operating system in its smartphones as well as tablets. The software finds wide application in embedded systems - such as automobile infotainment systems - given its low hardware requirements, stability, and flexibility. The growing interest in the ‘Internet of Things’ such as smart homes could be an important growth lever for the QNX business.
During Q3 CY 2014, BlackBerry acquired Movirtu, a U.K. based start-up that provides a virtual SIM platform that enables users to have their personal and business phone numbers operating on the same smartphone. The technology works on devices running iOS, BlackBerry OS as well as Android devices. The acquisition complements much of the company’s current efforts in the mobile device management space.
BlackBerry's Efforts to Improve its App Store
One of the reasons why BlackBerry has been losing share in the smartphone market is that it lacks the strong app ecosystem enjoyed by Apple and Google. The company has been trying to improve its App offering of late, signing a deal with Amazon that will allow the company to offer apps from Amazon's Appstore on its BlackBerry 10 devices. The Appstore will serve to more than double the number of titles available to users of BlackBerry's newest devices and will also introduce several popular apps that were previously unavailable to BlackBerry users. The deal should save the company the time and effort in courting developers to create more apps for its shrinking user base, while allowing it to free up resources to focus on the enterprise and security offerings on which it is betting its future.
Rising competition in the enterprise space
BlackBerry has been able to charge a premium for its service and security infrastructure, which is why many corporate IT departments view it as the leader in wireless security. However, rivals such as Apple and Google have come up with their own enterprise-focused solutions by partnering with other companies. For instance, Apple has teamed up with IBM to increase the deployment of its iPhone and iPad devices in the enterprise market. Offerings such as these could hurt BlackBerry's monetization of its core enterprise business.
Service revenues trend lower
While BlackBerry services still remains the company’s largest division, accounting for over 45% of consolidated quarterly sales as of Q4 FY2015, the division's revenues have been declining steadily owing to user attrition and customer migration onto other smartphone platforms. Service revenue consists of monthly system access fees (SAF) that the company bills to users of Blackberry 7 (and prior) operating systems. Users of the company’s latest BlackBerry 10 devices get the basic services for free, although they need to pay for value-added encryption or enhanced enterprise mobility services. BlackBerry is projecting 15% decline in service revenues each quarter going forward, as more users migrate onto its new devices such as the Passport and the Classic that don't necessarily need the service.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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