A Bull And Bear Case For BlackBerry

Apr.17.13 | About: BlackBerry Ltd. (BBRY)

BlackBerry Inc. (NASDAQ:BBRY) managed to come back to the black after only one quarter selling its new handset, the Z10. Renewed investor confidence pushed the stock up marginally after the report, and the stock has held relatively steady ever since. BlackBerry's management must now navigate it through unsteady waters as the phone maker fights to regain market share. Although there are several hurdles left for BlackBerry to jump through, positive indicators also exist for the corporation.

Bull Case

  • BlackBerry is in the black. That reason alone is enough to believe that the company is back. Many in the investment world, including myself, doubted that the company could generate a profit. Yet I was proved wrong when BlackBerry generated a post-tax income of $94 million. Although BlackBerry lost revenue from the previous quarter, efficiency programs instituted by the management have allowed it to generate a profit.
  • BlackBerry posted a 40% gross margin. This level of profitability is indicative of good administration and an efficient supply chain.
  • BlackBerry made a name for itself selling secure phones to large enterprise customers. An order for 1 million BlackBerry Z10's by Brightstar Corporation, as well as several smaller orders, is proof that there is still demand for BlackBerry units. If BlackBerry can root itself securely in the enterprise market, it will continue to be profitable.
  • BlackBerry CEO Thorsten Heins stated that 55% of people who bought a Z10 internationally switched over from different operating systems. The fact that this proportion of people are willing to switch over to BlackBerry 10 means that it is being well marketed and welcomed in various markets.
  • The BlackBerry app store has grown to include over 100,000 apps. Apps are the lifeblood of the smartphone industry: BlackBerry's dedication to improving the quality of the app store will pay off.

Bear Case

  • BlackBerry lost 3 million subscribers from the previous quarter. Although the Z10 has been selling well in most markets, BlackBerry's subscriber base continues to shrink. With fewer subscribers there is less revenue; this trend needs to reverse if BlackBerry wants to be succeed.
  • BlackBerry 10 launched well in most markets, but dropped the ball in the most important one of all, the United States. BlackBerry had poor sell-through throughout the States, as well as reportedly receiving improper floor space in carrier's stores. The United States market is one of the largest and most developed smartphone markets in the world. It is in BlackBerry's interest to have its new products gain traction domestically.
  • As BlackBerry learned before, the phone market is incredibly fast-paced and dynamic. Every day companies pour money into R&D departments to bring about sleeker and more powerful devices. As BlackBerry continues to expand into a larger variety of markets, industry titans Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) are nearby. BlackBerry will need to continue to innovate, as well as enter different segments of the market in order to remain profitable.

Conclusions

BlackBerry has a lot going for it. The company definitely has the potential to regain a significant portion of its former glory (and market share) if it plays its cards right. As long as management can deal with the hurdles in the way, BlackBerry stock will appreciate. For now, it seems advisable to go long.

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.