Seeking Alpha
Long/short equity, event-driven, research analyst, activist investor
Profile| Send Message|
( followers)

BlackBerry (NASDAQ:BBRY) is a company that I held a brief long position in over the last couple of months, and one of the speculative positions that might be part of a big risk/big reward scenario for 2014. Also, there's simply the chance the company is going to continue to plow through its cash and chisel 2014 onto its own headstone.

But, that's unlikely - BlackBerry is going to mount some kind of offensive in 2014. There were a lot of questions going into today's earnings with regards to what, exactly, the company's plans were - and we received a bit of color on that during BlackBerry's release and subsequent conference call this morning.

BlackBerry's deplorable earnings were released this morning before the market opened, causing BBRY to dip as much as 6% before rebounding, going green, and opening up 1.8%.

The market wants to give BlackBerry a chance.

The quarter's revenue was clipped 24%, to $1.2 billion.

BlackBerry reported a net loss of $4.4 billion, or $8.37 a share, in the quarter ended Nov. 30. Analysts were expecting a quarterly loss of 44 cents a share on $1.59 billion in revenue, according to analyst estimates.

Some of the results were ugly due to tons of ugly accounting writedowns, but that's generally expected anytime you bring a new regime on board at a company in the position that BlackBerry is in. For that, I'm not too concerned.

One positive that stood out was the fact that BBM users are up over 40 million - more than double the previously disclosed number of 20 million. Many BlackBerry longs that used monetizing BBM as an argument for their bull case just got a shot in the arm.

As Seeking Alpha pointed out this morning, BBRY is going to try and monetize these users eventually:

For reference, BlackBerry claimed to have ~60M BBM users on its own devices earlier this year. BlackBerry has promised to eventually monetize Android/iOS users via ads; new value-added services are also a future possibility.

Additionally, the company seems to be roping in the cash burn somewhat, with cash decreasing $377 million, as opposed to $500 million burned last quarter.

The company disclosed that it was going to be entering into a 5 year partnership with Foxconn (OTC:FXCOF) that is primarily going to focus on selling BBRY phones through emerging markets - the first mentioned was Indonesia. Chen's strategy looks two pronged:

1. Capture people like government officials with high end, high margin phones that need the security.

2. Skip the retail user and go directly to the bottom of the chain, moving cheaper phones to cheaper areas.

BlackBerry additionally disclosed that Foxconn is now going to do most of its phone design in the future. The company itself is going to do what I've often suggested they do - focus on the high-end, specific need, enterprise and security phones.

Pushing BlackBerry into 2014 - A speculative buy.

Do you have a small spot in your long portfolio reserved for a speculative or big risk/big reward company? BlackBerry might just be the candidate for you.

In the last year, BlackBerry has really struggled to find ground and promise for its shareholders, on the back end of a botched buyout deal for 33% more than what the current share price is today. Instead, the company doubled down, loaded up on $1 billion in convertible debt, and is taking a new swing at things.

Previous CEO Thorsten Heins had already tried an "all in move" with BlackBerry 10, which turned out to be nothing short of an unmitigated disaster: stockpiled inventory, missed shipping dates, poor advertising, and little to no consumer demand.

The helm was then turned over to John Chen, who is reporting his first quarter with the company.

With another quarter behind it, a plan in place, cash burn coming down, and massive writeoffs behind it, BlackBerry could be in a position to try and take back profitability as a company.

Chen seems to have a plan that he's behind:

"With the operational and organizational changes we have announced, BlackBerry has established a clear roadmap that will allow it to target a return to improved financial performance in the coming year," said John Chen, Executive Chairman and Chief Executive Officer of BlackBerry. "While our Enterprise Services, Messaging and QNX Embedded businesses are already well-positioned to compete in their markets, the most immediate challenge for the Company is how to transition the Devices operations to a more profitable business model."

Chen added: "We have accomplished a lot in the past 45 days, but still have significant work ahead of us as we target improved financial performance next year. However, the Company is financially strong, has a broad and trusted product portfolio to work with, a talented employee base and a new leadership team dedicated to implementing our new roadmap."

The company continues to trade at about 80% of its book value. If Chen can execute with a fresh start in 2014, BlackBerry could easily push back towards the $10 region by mid-year. However, there's still a substantial amount of risk investing in BlackBerry.

With big risk comes big reward, and BlackBerry might just have a small place in my portfolio going into 2014. Best of luck to everyone willing to take a chance on Mr. Chen and his cleanup of the company - it would be great to read a success story here eventually.

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.