BlackBerry: Bulls Won't Regret It, And Neither Will You

| About: BlackBerry Ltd. (BBRY)

Last month, BlackBerry (NASDAQ:BBRY) reported its fourth quarter and full-year results for fiscal year 2013. With its newly launched touch screen smartphones, the company was able to deliver profits in the quarter, beating the analysts' expectations. It disclosed a profit of $98 million in the last quarter, compared with a loss of $125 million a year ago. Even though the subscriber base was down by three million in the quarter, the company reported shipments of one million new smartphones of BlackBerry 10 during the period.

The gross margin at the end of this quarter came as the biggest surprise in the results. For the three months ending in March 2013, the gross margin stood at around 40%, which was up from 30% in the previous quarter and 33% in the previous year. The margins were mainly driven by the higher selling price of devices, especially Z10 and also other hardware margins. On the whole, the full-year results were not that impressive, mainly because of the company's struggling period before the BB10 launch. The full-year revenue was down by around 40% at around $11 billion.

BlackBerry 10: The full picture!

The beginner's luck

More than 50% of the Z10 devices sold last quarter were to customers from other platforms. I believe the majority of this would be former BlackBerry users who prefer a touch screen phone and were compelled to shift to other platforms, when BlackBerry lacked the touch phones. Along with this, the already existing fan base of BlackBerry started upgrading to the new Z10 phones. The Z10 smartphone is re-engineered and modernized to compete against Apple Inc.'s (NASDAQ:AAPL) iPhones and Google Inc.'s (NASDAQ:GOOG) Android based smartphones. The phone also has various unique features, which are lacking in the current market leaders. For example, Z10's features allow for powerful multitasking on a smartphone, which is a new concept in the market and is lacking in the iPhone as well as Nokia's Lumia range. Moreover, BlackBerry also launched a completely new app store with more than 70,000 apps for the BB10 platform to catch up with iOS and Android.

I am also impressed by the initial reviews of Z10 in the U.S. market, despite various issues related to the delay. Companies like Best Buy (NYSE:BBY), Verizon (NYSE:VZ), and AT&T (NYSE:T) are becoming more and more aggressive with their marketing campaigns to further increase the sales of Z10. There still remains a huge opportunity for the company to replace iOS and Android among carriers such as AT&T and Verizon. These carriers are currently dominated by Apple and Samsung (OTC:SSNLF), which affects their profitability due to lower profit margins. If the company is successful in establishing BB10 as a successful substitute to these platforms, the carriers can completely switch to BlackBerry creating a win-win situation for both the parties.

Moving forward, BlackBerry is introducing its second model Q10, under BlackBerry 10 shortly. The loyal fan base of BlackBerry will help the company to make a rapid comeback in its existing subscriber base. Similar to the Z10, Q10 will be initially available in the markets of Canada and the UK, followed by some markets in Europe, Asia, the Middle East and Africa, finally heading toward the U.S. With a huge market of 20 million - 30 million high-end BlackBerry users worldwide, it would be really easy to achieve around three million smartphone sales per quarter, once the devices are available in all major markets.

The challenges

The ever increasing competition in the smartphone industry is the biggest threat to BlackBerry. Samsung is already coming up with a new model S4, under its flagship range of Galaxy smartphones. The Samsung Galaxy S4 is one of the most awaited and most popular high-end Android phones in 2013. Being the fourth model of the highly successful series, the company has huge expectations to live up to. I feel S4 lags in bringing out some revolutionary upgradation from its previous models. But, it is definitely a buy for Samsung lovers who are looking to upgrade their older phones. Similarly, Apple will be launching the iPhone 5S in the second half, which will further heat up the competition. Because of its dominance in the U.S. market, this launch will directly hit BlackBerry devices there. I feel, the ecosystems of Apple and Android are much bigger than that of BlackBerry, which provides them the advantage in this highly competitive industry. It is certainly a challenge for BlackBerry to market its devices in the midst of such big names of the industry, but the company is off to a good start and, I feel there is no looking back.

For investors

The first quarter of fiscal year 2014 will be a key catalyst for BlackBerry, as the most challenging phase is over. The company has successfully launched the platform and, now is the time when the restructuring will start delivering financial benefits. BlackBerry's stock has enjoyed a great recovery with around 90% returns in the last six months. This even includes the volatile performance of the stock in the last three months, where it was down by almost 20%. This downfall is an attractive buying opportunity for investors, keeping in mind the recent optimism surrounding the new BB10 products. I upgrade my recommendation to buy from hold on this stock. You can read my previous article here.

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.