BlackBerry (NASDAQ:BBRY) stock has had some wild moves since the start of the year. However, increased volatility is not unusual for a company that has recently launched a new product that could decide whether it can survive in the extremely competitive smartphone market. What is unusual, though, are some of the reasons attributed to these extraordinary daily moves. After gaining more than 6% on Wednesday last week on reports of a double notch upgrade from Morgan Stanley, the stock more than erased the week's gains on Friday. The 7.7% nose-dive was attributed to some hysterical comments in the mainstream media, which include this article from the Wall Street Journal which reports the lack of crowds at a couple of AT&T (NYSE:T) stores they visited on a Friday afternoon as well as fear-mongering from CNBC, who reported "No Lines…No Waiting" for the US launch of BlackBerry Z10. So does this mean that BlackBerry 10's prospects in the US are over?
Far from it, I would say. Reading the first line of the article from WSJ exposes the negative bias of its authors.
"Research In Motion Ltd.'s new BlackBerry appeared to land with a thud in its U.S. debut Friday, failing to produce the crowds or buzz of competitors' recent smartphone launches."
"Land with a thud," you say? To be honest, any investor who was long BlackBerry and expected the BlackBerry Z10 launch to generate mile long queues outside retail stores must be living in 2009. In fact you would not have seen crowds similar to Apple (NASDAQ:AAPL) iPhone launches even in 2009 when BlackBerry had 55% of the smartphone market share in the US because most BlackBerry users are not some hipster youngsters racing to be the first to the new coolest product in town; BlackBerry loyalists are professionals who were probably at work at the time WSJ visited the TWO stores. Moreover, the customers can just order the phone online and get it delivered to their homes, you know.
While WSJ's reporting can be labeled as just harsh, CNBC's was plain ridiculous. Do see their coverage for yourselves but here are some of the gems from the "Squawk on the street":
"I will tell you the lines didn't materialize and so far [it's just 10 AM] in the store we've only sold seven phones… is this phone going to fall flat on its face?" She says.
On the comparison with Apple's iPhone, she says, "it's got the apps the same way the iPhone does…but at the same time it's not that easy to use. I don't know if they were just trying to make it different from the iPhone…it seems a little counterintuitive to me."
There you go; with barely 10 minutes of use, she's already decided that it's counterintuitive and reinforced the iPhone's unquestionable supremacy over all non-iPhone smartphones.
We all understand that the US smartphone market is ultracompetitive and it would be very difficult for BlackBerry to regain even a fraction of the market share it has lost to the iPhone and Google's (NASDAQ:GOOG) Android based devices. However, that there were no "lines" of people queuing up to buy the Z10 has no information value about the future success of BB10.
However, slightly more worrying are reports regarding the lack of promotion the device is receiving in the AT&T stores. Skeptical about the reports in the mainstream media, I surveyed various forums on the web and called up some friends in the US and it turns out that most of the AT&T stores are completely downbeat about the launch. I would advise all BlackBerry investors to go through this forum and make up their own minds, but here are some of the common responses from people who have visited the stores so far (via the Crackberry forum):
- The sales reps didn't even know that BlackBerry had launched a new device
- The sales staff was poorly trained or not trained at all about the Z10
- Most of the sales staff were very downbeat about the Z10, whereas some sales reps were actively talking up the iPhone and Android devices to customers whilst downplaying the Z10
- Some stores had not even set up the device for display
- At stores where the device was displayed, it was done so at the back corner of the store
- The Z10 was placed with older devices like the iPhone 4
- There were no banners, signage or any form of special advertising at most AT&T or Best Buy (NYSE:BBY) stores
While some people are blaming AT&T for being biased against BlackBerry, I don't think that is the case; BlackBerry is just facing up to the reality of the 2013 smartphone market after being out of the loop for so long. The sales reps are not biased; they just want to sell what the consumer wants, and unless the consumer is a firm BlackBerry loyalist, it's just easier for the sales reps to convince a customer to buy a mainstream iPhone or Android device, as opposed to a BlackBerry device that the sales personnel are not even properly trained with. BlackBerry might have made an excellent product, but it would have to work hard to remove the stigma of being a company with old-school and outdated products.
Also, it's important to note that not all the stores were equally lackluster; I have also read reports that say that some stores were pretty enthusiastic about the Z10, like this one. However, such reports were few and far in-between a multitude of poor experiences.
In today's market, online buzz may be considered to be more important than that at brick and mortar stores and the BlackBerry Z10 is getting decent enough of that as Google trends show. The BlackBerry Z10 appears on the home page for, AT&T and Verizon (NYSE:VZ) and Best Buy; with the device slightly more prominent on the Verizon website leading some to believe that the Verizon stores could potentially offer a better retail store experience for prospective buyers than AT&T. The phone has received fairly positive reviews from most tech bloggers. However, what really surprised me were the extremely positive reviews from users who have bought the phone from AT&T & Best Buy so far as well as global user reviews on CNET. This shows that the quality of the product in itself is good enough; the issue lies with the brand image and awareness. Going through the user reviews also highlights that the most common "con" suggested by the users is the limited number of apps available on the platform; so for BlackBerry to gain entry into the mainstream smartphone market, it must attract developers to make available at least the most commonly used apps like Skype as soon as possible.
The only thing I can say for certain right now is that BlackBerry would be a very risky and volatile stock to trade in the next few weeks. The price movements will increasingly be affected by headlines coming out from the mainstream media and comments from sell side analysts. My guess is that sell side analysts would be coming out with negative comments on Monday morning regarding the lack of marketing effort from AT&T stores that I mentioned above and the stock could take a hit initially. However, I would be buying any significant dips into the earnings number because I believe that BlackBerry will report impressive sales numbers from their global launch, which should help the sentiment around the stock. For now though, BlackBerry remains a speculative play and no matter how biased the news-flow, it will continue to have an impact on BlackBerry stock even after the upcoming earnings release.
For the US market however, I believe that it is too soon to say if the launch was a "failure" or otherwise. I have played with a friend's Z10 myself and have found it to be an awesome device, both in terms of its hardware design and build quality as well as the BlackBerry 10 OS. I'm an avid iPhone user but I felt refreshed by the Z10's gesture based interface. CEO Thorsten Heins got a lot of stick for suggesting that the iOS interface is outdated but I partly agree with him; the iOS interface is still simple, elegant and easy to use but I have been sick of using it for the past five years and find no temptation to upgrade from my iPhone 4S to iPhone 5 which offers exactly the same experience. The good thing about the BlackBerry Z10 is that it offers a different style to iOS but it is similarly simple, intuitive and graceful, as opposed to the different but visibly cheap Android experience. I'm convinced that those who try the Z10 with an open mind will fall in love with the different, yet sleek experience that it offers. However, for BlackBerry, the challenge would be to force prospective customers to at least consider the device when opting for a high end smartphone, which does not appear to be the case right now as the AT&T retail experience shows. To do that, BlackBerry would have to significantly up its marketing efforts in the US, which would require a strong marketing budget to compete with the likes of Samsung (OTC:SSNLF), Apple and even Microsoft (NASDAQ:MSFT). This would create a dilemma for BlackBerry management because the resources required to compete with the marketing efforts of its competitors would put a strain on the company's EPS in the coming quarters even though marketing is necessary. I believe that it would be extremely important to give the BB10 an initial momentum from the marketing side; after that, I believe that the product quality is good enough to drive its own buzz through word of mouth referrals.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BBRY over the next 72 hours.
Business relationship disclosure: This article was written by Dividend Pros' analyst covering technology.