Irrationally rabid BlackBerry (NASDAQ:BBRY) users and shareholders, or fan boys, are now deeply afflicted with Stockholm Syndrome. The term "Stockholm Syndrome" emerged in the aftermath of a five-day siege in Stockholm when bank robbers forcibly held employees captive within a vault. During that time, bank employees rejected help from the outside, as the victims actually developed real affinity for their captors. On June 19, 2008, the then Research in Motion stock established an all-time high at $148.13 per share, which also calculated out to $82.9 billion, in terms of market capitalization. Five years later, on December 9, 2013, BlackBerry shares closed out the trading session at $5.75. BlackBerry was then worth a mere $3.0 billion, according to Wall Street traders.
Over the past five years, misguided decisions out of the BlackBerry executive suite have burned through $80 billion worth of shareholder equity. During this time frame, Research in Motion managers dismissed the significance of the Apple (NASDAQ:AAPL) iPhone, officially named the company BlackBerry, awarded R&B diva Alicia Keys the title of global creative director, botched a BlackBerry 10 operating system rollout, and awarded $1 billion in convertible bonds that may severely dilute whatever is left of shareholder value. Still, BlackBerry fan boys have presented new hope for their salvation, in the form of BBM. Bulls, apparently, believe that a BBM spinoff can and will save BlackBerry's bacon. The BBM messaging application, however, will prove to be nearly impossible to monetize. Long-suffering BlackBerry shareholder hostages should save themselves, sell stock, and never look back.
As a sign of the times, the BlackBerry BBM review process has been marred by allegations of "Astroturfing." Sporting fans may recognize Astro Turf as a synthetic compound that is typically laid over top concrete within cold weather locations and indoor stadiums, in lieu of grass. Today's technocrats have extended the image of artificial turf to cover paid online stories placed at critical web junctions, for the sole purpose of drumming up artificial demand and talking points supporting a particular product or movement. Last month, The Verge and its followers exposed broken English text permeating Web 2.0:
Thank you so much, BlackBerry team. I was waiting for this app. It's really great. user friendly and smooth.
Multiple variations of the above clause were to appear throughout the BBM Google Play page that listed 376,388 reviews and 506,836 recommendations, as of November 21, 2013. The Verge, however, has already ripped the majority of positive BBM reviews as "fake." In response, BlackBerry issued a statement that read:
We have recently been made aware of a number of potentially fake five-star reviews of BBM for Android on Google (NASDAQ:GOOG) Play. We do not approve of or condone such activities and are committed to working with Google to resolve this.
On October 24, 2013, The Taiwan Fair Trade Commission fined Samsung (OTC:SSNLF) $340,000 for paying individuals to write positive reviews for its products, while also going on the attack against rival HTC. Both Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) have also been associated with fake accounts. A November 24, 2013 Wall Street Journal article exposes a "Twitter Factory," where proprietor Mr. Jim Vidmar boosts the online profiles of dozens of his clients through his use of 10,000 fake Twitter accounts. Recent Facebook and Twitter securities filings, alongside the work of independent researchers, have estimated that fake profiles account for between 5% and 10% of the reported active users at the social media giants. Web 2.0 backwaters apparently provide ideal habitat for "trolls," or pranksters. The constant Internet trolling and spam may adversely affect real BBM usage rates, while distorting nominal download statistics.
Proven Astroturfing and fake reviews out of BlackBerry have been far less egregious and less in number, relative to the cases associated with Samsung, Facebook, and Twitter. Still, this latest Google Play incident further erodes confidence in the BlackBerry brand and its financial condition at the most inopportune of times. A recent article out of First Post Business intimated that BlackBerry turnaround efforts have largely failed due to what has appeared to be an endless slew of well-publicized gaffes out of Waterloo. First Post Business proclaimed that BlackBerry lead investor and Fairfax Financial Chairman Prem Watsa "is no Warren Buffett."
On October 22, 2013, BlackBerry issued a press release that Android and iOS subscribers downloaded more than 10 million copies of the BBM application within 24 hours of launch. BlackBerry, of course, has pitched BBM on the strength of its instant message chat, file sharing, calendar, and PIN features. In keeping with BlackBerry's reputation for security, BBM users have organized contacts through the exchange of PINS, instead of phone numbers and email addresses. The Google Play review debacle, however, may have undermined any irrational exuberance coming out of the BlackBerry camp. Negative reviews and commentary have claimed that the majority of BBM downloads came at the hands of former BlackBerry fan boys, who fiddled with this application out of nostalgia, rather than for any perceptions of practicality.
The Messenger Market
The messenger market may be described as both saturated and fragmented, at best. Personal computer users can avail themselves to messenger programs already attached to popular email clients, message boards, and even dating websites. Social media platforms, such as the aforementioned Facebook and Twitter also provide direct messaging capabilities between mobile and desktop users. Mobile carriers, of course, charge for providing access to text, picture, video, and voice message transmissions. Mobile carrier Verizon (NYSE:VZ) offers pay per use packages of 20 cents per each message sent and received alongside bundle plans charging between $5.00 and $20.00 each month for 250 to 5,000 messages.
BBM, of course, will also compete directly against other messaging applications, such as WhatsApp, LINE, and Snapchat that have been scaled across multiple platforms. In separate articles, both David Bell of The Winnipeg Sun and Ellis Hamburger of The Verge have already ripped BBM for being "stuck in 2008." Bell went on to intimate that BBM usage rates have actually been abysmal, relative to reported downloads, while also suggesting that the PIN exchange model has been too bothersome for taking down contact information. BBM offers rather vanilla features within an already crowded space. For the sake of comparison, Snapchat is a messaging platform notable for maximizing viewing times at 10 seconds. According to NPR, teenagers prefer Snapchat for its privacy, because messages are automatically removed from company servers.
BBM lacks the innovation to generate a real return on investment as a standalone platform. Taken further, a potential suitor may either consider building out in-house messaging architecture, or purchasing a more modern application, such as WhatsApp, before making a play for BBM. All recent data out of both comScore (NASDAQ:SCOR) and IDC have confirmed that the BlackBerry operating system has been rendered all but obsolete within the mobile market. Taken together, Google Android and Apple iOS systems have combined to operate between 90% and 95% of the mobile market over the course of the past year.
Meanwhile, the Microsoft (NASDAQ:MSFT) buyout of Nokia (NYSE:NOK) is set to close during the first calendar quarter of 2014. Microsoft, with its $28.8 billion in 2013 operating cash flow, is hell bent upon establishing Windows as a player within the mobile market, largely at the expense of BlackBerry. According to comScore, BlackBerry held on to a meager 3.6% share of the U.S. smartphone subscriber market share through Q3 2013. BlackBerry actually lost 0.7% in market share upon a sequential, quarter-to-quarter basis.
The Bottom Line
On November 4, 2013, BlackBerry issued that the company had completed its strategic review period, without any buyout or spinoff deal to report. Instead, BlackBerry announced that it had taken on a $1 billion investment from a consortium of institutional investors led by Fairfax Financial. At the time, Fairfax Financial was the leading shareholder at BlackBerry, as the holding company owned roughly 10% of the outstanding stock in the telecommunications firm. The $1 billion investment actually referred to the principal amount of 6% unsecured subordinated convertible debentures. Terms of the agreement granted the bondholders rights to convert positions into BlackBerry stock at $10 per share. Wall Street obviously was not pleased with the news, as traders immediately dumped BlackBerry shares to $6.50, for a 16.3% loss on the November 4 trading session.
The $1 billion convertible bond deal flooded BlackBerry shareholders with prospective equity dilution. On September 27, 2013, BlackBerry reported that it closed out its second quarter of fiscal 2014 with a mere 524.5 million shares of outstanding common stock on the books. $1 billion worth of bonds convertible into $10 shares of stock would add 100 million shares to the business ledger and dilute ownership stakes by roughly 20%, if the company were to ever return back to profitability. In the event of any BlackBerry bankruptcy, the Fairfax Financial convertible bond consortium would also be served ahead of equity investors. Again, Stockholm Syndrome BlackBerry shareholders are now literally being held hostage at the Waterloo vault. The hostility out of the BlackBerry bulls directed towards any and all forms of dissent may prove that these people do not want to be saved.
Disclosure: I am long AAPL. 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.