The Market Is Doubting BlackBerry, But You Shouldn't

| About: BlackBerry Ltd. (BBRY)

The last week has not been pretty for shares of BlackBerry (NASDAQ:BBRY). The stock is down 15% just in a few days. Its pretty clear that there is plenty of pessimism for its new Z10 smartphone. The market is clearly doubting the potential of the smartphone to grab market share.

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Brian Blair, an analyst at Wedge Partners, has already mentioned his concerns about adoption of the Z10.

We agree, and believe that Android and iOS are simply too entrenched in the U.S. market for the Z10 to make much of a dent in the U.S. beyond an initial run of Blackberry brand loyalists picking up units in the May quarter. We also continue to see evidence of growing enterprise support of iOS and Android.

Brian makes a very good point regarding Z10's timing. I think its possible that Z10 could be successful with current BlackBerry subscribers, but I believe the chances of Z10 actually taking market share from IOS and Android is fairly slim.

The key question lies in BlackBerry's valuation. Is the stock pricing a possibility of grabbing market share or are the expectations simply for the retention of current BlackBerry subscribers?

I personally believe it will be the latter. What Brian says is more than likely going to happen. With IOS and Android already having been in the game for awhile, they have an established base. The amount of apps for IOS and Droid will make BlackBerry's apps look minuscule. In terms of phone features, I don't think Z10 will be better than the iPhone or Droid, but rather it's likely it will be on the same level. However, with all this said, it comes down to valuation.

BlackBerry's recent sell-off may provide a buying opportunity for investors. I believe the sell-off was due to the fact that the market was pessimistic about BlackBerry's chance of gaining share from Apple and Google. The sell-off makes sense as expectations may have initially been too high.

A third of BlackBerry's valuation is in cash on its balance sheet. That means that the remaining $5 billion is in the value of the brand and distribution, which I believe to be reasonable. We as investors need to understand expectations. BlackBerry CEO Thorsten Heins commented on reports of poor sales of Z10 in Canada and UK. Heins then stated "I completely disagree with that. This was the best launch ever in BlackBerry history, it was beyond expectations, and we have numbers to support that."

While reports of Z10 may seem bad, I will trust Heins on this considering that he has physical numbers to back his claim. Investors who are currently selling are confusing expectations with reality. Will Z10 be a hit and grab a massive chunk of the smartphone market? Not likely. Will Z10 be strong enough to retain loyal BB users and possibly acquire smartphone users who do not yet identify with a certain brand? This seems like a possibility. I believe BlackBerry is an interesting opportunity with the recent sell-off.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.