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Investment Overview for BlackBerry (NYSE:BBRY)
Below are key drivers of BackBerry's value that present opportunities for upside or downside to the current Trefis price estimate for BlackBerry:
- 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. However, 2012 saw BlackBerry lose market share to less than 2%, as the company struggled to bring its next-generation BB10 to market amid increasing competition from Apple and Samsung. Going forward, we expect BlackBerry's market share to decrease to about 1% by the end of Trefis forecast period. This is mostly due to the competitive nature of the mobile phone landscape, where the iPhones and the Android-based smartphones are increasingly becoming popular. BlackBerry's niche position within the enterprise is also under threat from the same, as users increasingly prefer using their personal smartphones for business purposes as well. However, BlackBerry is pinning its hopes on BB10 to stage a turnaround. If BlackBerry is successful in its attempt and is able to grow its market share back to around 3% by the end of our forecast period, there could be an upside of about 15% to our estimate for the stock. On the other hand, if BlackBerry fails to do so and its market share decreases to nil 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 $4.25 per month in 2007 to about $3.15 per month in 2012. 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 5% to our estimate for BlackBerry stock. On the other hand, if the service revenue per retail subscriber plummets to around $1 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 (earlier Research in Motion) shed its old moniker and took the name of its best known product on January 30, 2013 - the day that it launched its new BB10 OS. The company designs and develops a line of high-end smartphones that have become commonplace among professionals, and are becoming increasingly prevalent among non-business users as well. Its distribution channels are primarily mobile phone operators such as Verizon, AT&T, T-Mobile, Vodafone, and mobile phone retailers.
In addition to selling BlackBerry hardware, BlackBerry makes money through its monthly push email service access, where charges are levied on mobile phone operators based on the number of active BlackBerry subscribers on their networks. Push email service is an 'always-on' email service, where new emails are pushed to BlackBerry subscribers' at the instant of receiving. In comparison, many existing mobile email services operate by periodically checking for new email updates.
BlackBerry's Push Email division contributes the most to the company's value, ahead of its BlackBerry division 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, we believe that BB10's launch will help it stem the rot and cause its market share to decline at a slow rate to about 1%, by the end of our forecast period.
2. Greater 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 over 70% margins currently.
BlackBerry plans to use BB10 to reverse losses
BlackBerry has made conscious efforts in the recent past to improve its product portfolio, having made a few key acquisitions of companies including Cellmania, QNX and Astonishing Tribe to improve its software design and performance.
The company acquired QNX in April 2010, with a view to enhance its product portfolio and use the real-time operating system in its smartphones as well as tablets. After a number of delays, the company finally launched the BB10 OS in January 2013, combining the best features from QNX and the strongest pieces of BlackBerry to provide a sleek smartphone interface and faster multitasking for corporate, as well as retail customers. BlackBerry is also pushing the Near Field Communications (NFC) technology in its new BlackBerry lineup, enabling third-party developers to create mobile payment applications that allow owners to use their phones as digital wallets. Other new features such as access to 4G LTE networks, a sharper display, RAM upgrade and an improved camera should also spark interest.
BlackBerry has high hopes on PlayBook tablet
The company has faced fierce competition in the consumer tablet market, owing to a flurry of cheaper tablets introduced in the market, including Amazon's Kindle Fire and Google's Nexus tablet. The company has resorted to slashing PlayBook's prices and introducing promotional offers to boost its lagging sales.
However, BlackBerry hasn't given up on the PlayBook and plans to migrate it to the new BB10 operating system. Since the company is placing all its hopes on BB10, it makes sense to provide customers the full range of products and build a mobile ecosystem around the new OS. The lone bright spot for BlackBerry is the enterprise market, where tablets could potentially replace PCs going forward. With the tablet market growing exponentially, BlackBerry will be hoping to leverage its established presence in the enterprise market to lift its tablet sales.
BlackBerry's efforts to improve its app store are slightly encouraging
One of the reasons why BlackBerry has been losing share in the smartphone market is that it lacks the apps ecosystem strength enjoyed by Apple and Google. Without a conscious effort to improve its app platform, the BB10 may not gain much traction in the mobile market.
With this in mind, BlackBerry has launched its smartphones with an Android player that allows users to run Android apps on BB10 devices. While this has helped BlackBerry access the huge and thriving Android app market instantly, a lot of important apps such as Google Maps, Android Live Wallpapers, SIP and SIP VoIP, applications that contain widgets etc will still not be portable onto BlackBerry.
Increasing Smartphone Demand and Competition
In 2007, Apple entered the smartphone segment of the mobile phone market, followed by Motorola, Samsung and other players. 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 is pinning all its hopes on the BB10 to stage a turnaround now. The recently launched Z10 marks the arrival of the first full-touch BlackBerry smartphone that seems likely to hold its own against rivals. The QWERTY-based Q10 will appeal to the traditional BlackBerry lovers, and might help it win back users who had jumped ship to rival platforms. BB10's late entry however pits it against the two already well-entrenched ecosystems of iOS and Android, taking market share away from which will take some doing.
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 have come up with their own push email and messaging services, which compete directly with BlackBerry's popular services and put its services revenues at risk. Third-party messaging services such as WhatsApp and WeChat have also risen in popularity. As competition in the smartphone market intensifies, more competitors might start offering comparable security features without access charges.
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.
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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