BlackBerry Has Strong Stock Price Appreciation Potential By 2014

Feb. 6.13 | About: BlackBerry Ltd. (BBRY)

With BlackBerry's (NASDAQ:BBRY) launch, last week, of two new smartphones (Z10 and Q10) which are running a new operating system called BB10, Blackberry (formerly called Research in Motion (RIMM) has officially begun its comeback.

Reviews of the Z10 product have generally been quite positive and early signs indicate that BlackBerry now has a product that can compete in the global smartphone market, although it does not yet exceed the smartphone performance of the two market leaders, Apple and Samsung. BlackBerry also has a large disadvantage with regard to phone apps, with only 70,000 available versus the more than 750,000 available on Apple and Android devices. Nevertheless, I am now more optimistic regarding BlackBerry's ability to be successful in the long term.

First, let's look at BlackBerry's historic shipments by year:

(2007 - 2012 Estimates provided by Gartner Inc.)

Year

2008

2009

2010

2011

2012

2014 Estimate

BlackBerry Phone Shipments

(Millions Units)

23.2

34.4

47.5

51.5

32.5

~ 50

Click to enlarge

According to IDC Corporation, BlackBerry's 2012 device sales of 32.5 million represents less than 5% of the global smartphone market. In addition, the global market is expected to grow over 20% annually through 2014.

If we assume a pessimistic scenario where BlackBerry's market share remains at only 5 - 6%, it will still sell about 50 million smartphones globally by 2014. That would bring BlackBerry annual sales revenue back to 2010 - 2011 levels of 16 - 20 billion dollars per year and earnings per share to, at least, the $3-5/share range. (BlackBerry's earnings per share peaked at $6.47/share annually on revenue of 20.3 billion dollars during the fiscal year ending February 2011). This leaves plenty of upside for shares currently priced in the $16 - $17 range to advance significantly by 2014.

Please note that this is a "long-term" forecast and will not likely play out till late 2014. BlackBerry's quarterly results for the fiscal quarter ending February 2013 will be poor with negative earnings on declining device sales combined with higher marketing costs during Q4 2012 and January 2013 to promote the new phones. In fact, high marketing and operating costs relative to sales volume will likely keep earnings per share low throughout 2013 as BlackBerry continues to build global sales levels. It will also need to make investments that will help promote the building of more applications by developers, which is critical to the future of the new operating system.

Disclosure: I am long BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.