Is BBM The Dark Horse of BlackBerry’s Turnaround?


BlackBerry’s (NASDAQ:BBRY) mobile messaging application, BlackBerry Messenger (BBM), is viewed as a dark horse of sorts in the company’s turnaround strategy, given the soaring adoption of messaging applications across the globe and BlackBerry’s move to take the service cross-platform. BlackBerry had big ambitions for the service, with CEO John Chen indicating in January 2015 that the service could garner about $100 million in revenues during fiscal 2016 counting on advertising, mobile payments and stickers in addition to offering a more secure, subscription-based version of the service. However, 18 months later, BBM doesn’t seem to be living up to its promise amid sluggish user growth and potentially weak revenues.

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Messenger’s MAU and Revenue Track Record Has Been Weak

BBM’s user growth has been relatively lackluster, with its user base rising from just about 85 million in mid-2014 to roughly 90 million at the moment. In comparison, WhatsApp has seen its monthly active user base almost double to about a billion users in the same time frame. While this is partly due to the decline of BBM usage on BlackBerry’s own smartphones, which have seen a precipitous decline in market share (under 0.2% as of Q1), it could also imply that the firm’s cross-platform strategy hasn’t been very successful.

BBRY_software_mix_1

Although BlackBerry doesn’t break down the performance of Messenger in its results, it is likely that the service fell short of its revenue target last year. BlackBerry’s total software and services revenue for the year stood at about $494 million. We estimate that the core EMM software, QNX and the tech licensing businesses accounted for about $360 million in revenues, implying that BBM and the firm’s fast expanding value-added service offerings together accounted for about $134 million in revenues. As BlackBerry has doubled down on value-added services via acquisitions such as WatchDox, Movirtu, AtHoc and Secusmart over the last two years, these services likely contribute meaningfully to revenues, indicating that BBM likely fell short of its $100 million target for the year. 

Could An Indonesia Focused Strategy Work? 

One market where BBM has gained significant traction is Indonesia, which is reported to account for close to 60 million of the services total 90 million users. This puts BlackBerry ahead of global leaders such as WhatsApp and Facebook Messenger, who held around 50 million active users each, per U.K.-based social media consultancy We Are Social. [1] An Indonesia-focused business model could have legs for the company; there are many successful chat applications which are heavily concentrated around a certain country, and derive value from becoming the go-to messaging app on account of their user bases and related network effects.

For instance, WeChat is most popular in China, while Line’s user base largely lies in Japan. It is possible that BlackBerry could have a similar positioning in Indonesia, a fast-growing emerging market. BlackBerry is increasingly focusing on making BBM an all-in-one application that allows for various tasks ranging from watching videos to making payments, much like WeChat. The firm recently partnered with Indonesia-based media company Emtek to bring its video content onto BBM, while developing new services and applications for the messaging applications. [2]

Where Does The Value Lie In The Case Of A Divestiture?

Mobile messaging properties have been witnessing astronomical valuations of late, which raises the question of what BBM – one of the oldest mobile messaging applications – would be worth. Factors that impact valuation include the number of users on platform and the potential for monetizing the time users spend on these platforms. For instance, WeChat has become an e-commerce and mobile payments powerhouse in China, handling billions of dollars in transactions every month. WhatsApp’s valuation is driven by its massive user base (upwards of 1 billion users worldwide), which should help to ensure low churn given the network effects. Line, which is set to go public soon, is also seeing strong valuations, as it caters to the affluent Japanese market. The table below provides some estimated valuation metrics for these platforms. 

BBRY_software_mix_2

However, in BlackBerry’s case, selling BBM could prove tricky. Firstly, BBM’s 90 million strong user base is much smaller that most other popular messaging applications, and it’s possible that deep pocketed rivals such as Facebook could win over BBM subscribers. Additionally, BBM is likely to be tied in a big way to BlackBerry’s smartphone business, which could put its valuation at risk since BlackBerry has indicated that it may shut down its smartphone unit if it fails to meet its sales target of 5 million devices this year. That said, one area where a potential buyer could see value is in the technology and privacy side of BBM, but this is likely to be tied to BlackBerry’s overall software infrastructure itself. 

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Notes:
  1. Why BlackBerry Is a Hit in Indonesia, WSJ, February 2016 []
  2. BlackBerry Wants to Be the WeChat of Indonesia With Emtek Deal, Bloomberg, June 2016 []