I've been calling this conundrum that BlackBerry (NASDAQ:BBRY) is in since February 4th, when I published one of my very first articles here on Seeking Alpha entitled "Dead Company Walking: 5 Reasons BlackBerry 10 Marks the End".
I was promptly told by what seemed like billions of BlackBerry longs that my arguments held no water, and that I was wrong on every possible account.
I stated in my previous article:
The mobile phone market is no longer an emerging market. It is a market simply dominated by both Apple and Android. In conjunction with that, almost all smartphone accessories and 3rd party products are made for either the iPhone or certain Android phones. BlackBerry is not only going to have to compete with these two, it's going to have to reintroduce itself as a whole into the already firmly established mobile phone market. That means the potential customers that BlackBerry is going to be going after are probably already loyal to either Apple or Android.
These five points are enough for this investor to lean towards the bearish side on the upcoming BlackBerry 10 release. Unfortunately, in the balance, also hangs the fate of the company as a whole. There is substantial risk on going long BlackBerry here, a risk that makes a short position the most desirable here.
And here we are in mid September, 2013 - and it's looking like BlackBerry is running out of options.
The trading on BBRY for the past six months has resulted in some investors taking nearly 40% losses from BBRY's recent highs near $16 in late April/early May. Even though, in the last 12 months, the company has still be able to produce returns of 42.5% - an area that this investor will argue should be viewed as continued potential downside for BBRY.
And now, it seems like BlackBerry has gotten themselves into a bit of dire straits. What's next for the company? Strategic alternatives? Buyout? New revolutionary product to save the company? As postulated by another Seeking Alpha contributor seemingly trying to throw the mother of all hail marys, the Z30 phablet to save the company?
While Gillian Mauyen's article is very well written and raises a ton of fact based points about Apple not being in the phablet game, and the potential of the phablet market going forward, I'd love to provide a friendly counterpoint as to why I think the phablet is not going to be BlackBerry's savior.
No doubt you've seen phablets around, when you've asked yourself "what in god's name is that guy doing holding his entire tablet up to his ear?", or "why is that guy's phone the size of a small third world country"?
A phablet is a horrible mutant mixture between a phone and a tablet, that some people think could be the "niche" that could save BlackBerry. QTR thinks there's a couple of major problems with this, so let's explore why there's no possible way that a phablet is going to be BlackBerry's saving grace.
1. It's Not a Niche
Tablets are a niche. Phones are a niche. PCs are a niche. Phablets, are again, an emerging horrifying mutation of two niches that already exist; not unlike a strain of some flesh eating bacteria that has mutated to avoid convention medicine, the phablet is what people who want major innovation 24/7 have mashed together, seemingly strictly out of boredom.
All of the hype on phablets going forward are all based on proformas or forward looking projections. You can't ignore the risk that potentially comes should not just the Z30, but the phablet in general not catch on.
2. Frankly, It's Just Plain Ridiculous
I can't be the only one seeing this - right? Somebody tell me that I'm not losing my mind.
In a tech world where the focus is on getting things smaller, more lightweight, and easier to store - how, exactly do these projections take into account that there may not exactly be millions of people that want to walk around holding something the size of one of Jupiter's moons up to their ears?
Hadn't we just popularized things like Bluetooth headsets and Google (NASDAQ:GOOG) Glass, specifically for the point of making phone calls easier and less obtrusive?
3. BlackBerry Can't Execute a Launch of Products
Lest we forget, should we get to the point where BlackBerry decides they want to throw the money and the advertising behind the Z30 to make it a flagship product for the company, the company's past proves that they really don't have much of a clue as to how to effectively release a product that they're going to try and use to break into an emerging or existing market.
Remember what happened when BlackBerry tried to launch a product in the beginning of the year? I do, and I wrote about them missing the launch for their line of phones:
This is an abhorrent way to start off a pitch for a new phone. The phone, although making its debut in parts of the world in the coming days, will not be available in the US until March. BlackBerry is blaming the delay on the US cellphone carriers, but one has to wonder why a company so well versed in the mobile phone market couldn't anticipate this and plan accordingly to have the phone released in the US on time. What does this mean for the company and for investors? Could there be something behind the scenes that we don't know about to cause this seemingly avoidable setback?
Also, the company isn't getting nearly as much bang for their buck for their Super Bowl ad which aired yesterday. There's going to be a nice buffer zone between that being fresh in the minds of potential consumers and the actual time somebody in the US can go out and purchase a phone. During that time, interest will wane and people will forget about it.
BlackBerry developers, which are none too large of a group to begin with, are already getting annoyed with the delay.
The Z30 is simply not going to save the company. Incompetently launching a product for a niche that doesn't exist, that people are likely to not ever even going to want is about as much of a long-shot for "saving the company" as throwing BBRY's entire cash position on the yo-eleven for one last roll of the dice.
If BBRY wants to continue down a responsible road for their shareholders, they'd avoid taking on a massive project like this, and continue to focus on other "strategic alternatives" and responsible ways to try and deliver some percentage of shareholders investment back to them.
I argued that a buyout of the company "as-is" at this point is very unlikely:
I'll entertain those who think the company, as a whole, is worth more than $11/share - but the company absolutely cannot be sold "as is" to be a functioning company, in this investors opinion. The reason is simple: BlackBerry isn't a functioning company and hasn't really been for many, many years.
As I stated in my last article, a short squeeze would no doubt move the stock right now and can be considered a risk for people positioning themselves bearish on the company. The question is - what type of an event is going to make something like that happen? The Z30 launch is the type of event that's likely to do the opposite, draw even more shorts into BBRY.
Pushing a phablet would be a great idea if BlackBerry wants to test the waters of how big of a farce it can make itself, a la our friends over at J.C. Penney (NYSE:JCP) & Sears (NASDAQ:SHLD) - they're not just dedicated to disaster, they're doing it with seemingly precise masochistic execution.
As previously discussed, the one long shot I held in my mind for BlackBerry would have been an acquisition from Microsoft (NASDAQ:MSFT). I thought, behind fellow "late to the touchscreen party company" Nokia (NYSE:NOK), BlackBerry was the next best choice for MSFT to throw themselves into mobile - even though I'll be the first to admit that sometimes two wrongs (BBRY & MSFT) don't necessarily equate to a right.
At this point in BBRY's history, I maintain a very bearish stance on the company, which is carrying with it significant risk built into the fact that it is wandering around with no real direction, like a lost child abandoned in the Mall of America.
As always, best of luck to all investors.
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.