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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.
- Push Email Service Revenue Per Retail Subscriber: BlackBerry's Push Email service revenue per retail subscriber has declined from about $4 per month in 2007 to about $3.10 per month in 2013. This is primarily due to increasing competition from competing smartphones such as the iPhone which also provides its own push email service by licensing Microsoft's Activesync software. We expect this trend to continue, especially now that BlackBerry has decided to launch BBM as a free service on other platforms as well. However, BlackBerry has also pledged to focus on its enterprise business a lot more. This may enable the company to come up with valuable software upgrades that address its falling enterprise share as well as support pricing in the long run. If BlackBerry is able to maintain its current average revenues per retail subscriber till the end of our forecast period, there could be an upside of around 10% to our estimate for BlackBerry stock. On the other hand, if the service revenue per retail subscriber plummets to $0.50 by the end of the forecast period, there could be a downside of around 5% to 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 Push Email division contributes the most to the company's value for the following reasons.
1. BlackBerry sales on the wane
BlackBerry smartphone division used to contribute the most to the company's value not so long ago. However, the company's recent troubles with its Blackberry OS, in the face of increasing competition from Apple and Google has caused smartphone sales to plummet. Moreover, its position within the enterprise market is also under threat as companies get increasingly open to the idea of their employees bringing their own device to work. Although Blackberry's market share has decreased rapidly over the past year, the launch of BB10 and a series of new handsets such as the Z3 and the Passport could soften the decline marginally.
2. High Margins on Push Email
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 low single digits, push email affords it margins of over 80%, according to our estimates.
Increasing Smartphone Demand and Competition
While BlackBerry is widely considered to have made the first smartphone, Apple and then Samsung have run away with the market in recent years. BlackBerry’s handset business has seen a precipitous decline over the last few years. During Q1 FY 2015 – the company’s most recent fiscal quarter – hardware sales fell about 82% year-over-year, while the company’s global market share fell to just 0.5% (in terms of mobile operating systems) from close to 14% three years ago according to IDC.
BlackBerry is pinning all its hopes on BB10 and new hardware such as the Z3, 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 and Services
Given its current woes in the handset space, BlackBerry has been reworking the strategy for its software and services 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 has also been investing considerable resources in developing BES 12, which would unify 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 been trying to attract more customers to its BES 10 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 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.
Threat in Enterprise Market
BlackBerry's near term focus is to defend its market share in the business / enterprise market, and to gain market share in the consumer / retail market. The primary threat to BlackBerry's current leadership in the business market is Apple leveraging the success of the iPhone among consumers, and then entering the business market aggressively. Even Samsung is looking to do the same. BlackBerry's recent handset travails has seen both its primary competitors gain enterprise market share at its expense. BlackBerry’s share in the enterprise smartphone market fell to only about 10% in 2012. Apple, on the other hand, accounted for almost 50% of the smartphones shipped to enterprises, followed by Samsung at 16%.
BlackBerry Access Charges at Risk in Competitive Environment
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, Google is expected to integrate Samsung's KNOX technology with upcoming versions of Android software to make it more appealing to security conscious users. 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.
Increasing Wi-Fi and Mobile Broadband Availability
The increasing availability of mobile high speed Internet access creates opportunities for smartphones to move beyond e-mail and basic Internet surfing to new competitive fields. The availability of mobile TV shows, films, games, photo sharing, software applications, and video-conferencing are potential points of differentiation among smartphone competitors.
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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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