Just a few days after an offer was made to buy BlackBerry (BBRY) for US $9, shares fell back to $8. Recent events in the past few days can only be characterized as bizarre, as they contributed to the sharp drop in its shares. The company accepted a bid that did not have financial backing, delayed a highly anticipated cross-platform launch of BlackBerry Messenger ("BBM"), and is now canceling its quarterly conference call. Investors have no choice but to hope. Unfortunately, hope is not an investment strategy. The short-term share price of BlackBerry will also depend on management leadership in the near term. It is critical that BlackBerry reduce the uncertainty surrounding the company. Otherwise, the offer by Fairfax Financial's Prem Watsa would be at risk as the share price falls even lower.
Conference Call Cancellation
BlackBerry could have used the conference call to ensure the world that it was business as usual. Instead, the call was cancelled:
"In light of the letter of intent agreement between BlackBerry and Fairfax Financial Holdings Limited that was signed and announced on Monday, September 23, BlackBerry has cancelled its second quarter earnings conference call and webcast that had previously been scheduled for Friday, September 27 at 8:00 a.m. The company will publish further details regarding its second quarter results in the Management's Discussion and Analysis and consolidated financial statements, to be filed next week."
BlackBerry could have used the opportunity to clear up some of the uncertainty surrounding its future. Businesses could now act more quickly to look for alternative enterprise solutions instead of installing BlackBerry Enterprise Server solutions.
Launch BBM on Apple's iOS Only
BlackBerry blamed unreleased versions of BBM on Android as the reason the app was pulled from both Apple's App store and on Google Play. Andrew Bocking, the head of BBM, said:
The team is now focused on adjusting the system to completely block this unreleased version of the Android app when we go live with the official BBM for Android app. We are also making sure that the system is reinforced to handle this kind of scenario in the future. While this may sound like a simple task - it's not. This will take some time and I do not anticipate launching this week.
The company needs to release BBM within the next few days to demonstrate the value of the BBM asset. There is a strong demand for a secure cross-platform messaging application, since 1.1 million active users made the effort to download the application on September 21, 2013. The longer this BBM is delayed, the more likely the demand for BBM to wane, since users are willing to move on.
Immediately Discount Z10, Q10, and Q5
BlackBerry's marketing campaign failed to boost demand, but the high price of the device was to blame. The Z10 and Q10 were priced similarly to premium Android devices. Despite having numerous Apps, Android devices still had many more. BlackBerry could stem the decline in its market share by immediately offering the Z10 and Q10 at a slight mark-up. The company could even offer the device at-cost to existing BlackBerry customers as a reward for their loyalty. Any profit margin could be made back by users buying apps and retained loyalty for future device offerings.
The Q5 received a somewhat positive review, but is still expensive. BlackBerry could reduce its price in the emerging markets to boost demand and market share in those regions.
Bottom Line: Risks Elevated
BlackBerry became an increasingly risky investment after the company made a number of operational blunders in such a short amount of time. Watsa's bid is still nothing more than an expression of interest. He will require financial backers to complete this deal. This uncertainty will hurt BlackBerry shares further, and would make it easier for Watsa to offer a lower bid. The payout for management from a change in ownership is not assured right now. Management still needs to ensure operational continuity. This includes pushing out the updated BB10.2 and the new BlackBerry devices (including the Z30). BB10.2 dramatically improves the messaging experience and yet few will notice or even care, simply because of the uncertainty surrounding the company's future.
If the deal falls through and shares plunge, the $9 offer will look like a missed opportunity, yet BlackBerry could still survive. The company already planned to reduce costs by 50% and focus on the enterprise. The company could take on debt by pledging its patent portfolio as collateral. With a privatization distraction off the table, BlackBerry would be forced to work harder and more decisively, and shares would be trading well above that $9 bid.