BlackBerry (NASDAQ:BBRY) is a name that has been highly shorted, and despite what seemed to be "mild squeezes," the short interest continued to climb to new highs. Following the most recent, somewhat disastrous, earnings report, it seems that there is no end to the selling of this name. The question, now, is whether the shares have any sort of catalyst that can drive shares back higher, or if shareholders are simply stuck holding a bag forevermore?
It's Damn Cheap...For A Reason
At $8.97/share, the company trades significantly below book value of $18.24/share, and actually trades at an EV of just $1.8B. The company is actually astonishingly cheap, trading for a mere 3x EV/FCF. To be clear, the company has $2.82B in net cash on the books, but the business itself is priced at only $1.8B. But is anybody surprised?
While BlackBerry's attempt to establish and own its own ecosystem with the BlackBerry 10 platform, as well as its enterprise service division, is admirable, the sad truth for BlackBerry and its shareholders is that BlackBerry has neither the raw might that the likes of Microsoft (NASDAQ:MSFT) have to spur significant development efforts for its platform, nor does it have any sort of "must have" angle in order to draw in consumer and to convince them to forgo the attractive Apple (NASDAQ:AAPL) iOS and Google (NASDAQ:GOOG) Android based smartphones. Even Nokia (NYSE:NOK) is doing an admirable job with its Windows Phone 8 based Lumia 920 with a unique physical design and a pretty well chosen software suite.
But what's really puzzling is that BlackBerry is pricing its devices at the same level as a high end iPhone 5 or a top end Android device. Why would anybody want to pay premium pricing for a questionable physical design (let's be honest...the Z10 isn't all that sexy) and mediocre hardware specifications? As I cautioned, Z10 sales turned out to be a massive flop, and it is as of yet unclear how well the Q10 will perform in the marketplace. With the same "premium pricing for mid-range hardware" mentality, the only hope for these phones is that it sells based on a unique form factor - but even then, the world may simply have a preference for iPhone-like designs (just not those from BlackBerry).
At the low end, BlackBerry can - and will - be outgunned by the likes of Samsung (OTC:SSNLF) that have much better cost structures than BlackBerry could ever hope to have (all with Android, to boot). At the high end - which is showing signs of significantly slowing growth - BlackBerry just isn't there on the hardware side, and certainly isn't there on the software ecosystem side of things. Go to Amazon.com (NASDAQ:AMZN) and look for software development books for Android or iOS - you'll find hundreds. There's very little literature for BlackBerry 10, and what you'll mostly find is literature covering the older BlackBerry platforms.
The handset business isn't a good one to be in given the competitive dynamics in this space. It's low margin and getting lower, and highly competitive, with an inordinate amount of risk.
Can Anything Go Right?
Let's look at the other side of the coin; can anything actually go right for the company? Well, sure. If a larger company comes in and offers to buy BlackBerry out, then that would surely get current shareholders out of hot water! It's tough to imagine who would be interested; however. Apple, Google, and Microsoft certainly wouldn't want in. There was a somewhat asinine rumor that Lenovo (OTCPK:LNVGY) was interested, despite the fact that Lenovo would have had to get into massive debt to purchase BlackBerry at the time. Fortunately, that silliness has subsided. Samsung? I don't think so. That company is cleaning up on the Android side of things, and is looking to eventually push its Tizen platform.
Quite frankly, the best case scenario that I could see happening would be an offer from a private equity firm given the company's substantial cash position. However, what private equity firm would be interested in levering up to pick up a dying commodity smartphone player whose recovery prospects - in light of Z10 sales - seem limited?
Quite honestly, at ~$18 book value, it may be time for BlackBerry to consider shutting itself down, selling the assets that it can, and returning the cash to the shareholders. While bulls extol the virtues of QNX, the truth is that Android has taken over the smartphone world and is quite close to becoming the computing platform of choice across all client workloads. Microsoft has enough of a problem dealing with the ramp of Android, and so it is tough to see a player like BlackBerry make it out of this scenario alive. Even if current shareholders could get $14/share out of this, that would still represent a healthy premium to the most recent close of $8.97...although the long-term holders may not be all too happy.
The BlackBerry drama is set to continue for some time, that much is certain.