BlackBerry - Is BBM Really Worth Nothing?

Feb.14.14 | About: BlackBerry Ltd. (BBRY)

For the last year, vultures have speculated on the value of BlackBerry (NASDAQ:BBRY) if it was broken up and sold for parts. BBM is one of the most hotly contested parts.

Despite the recent success of 40 million registered users in 2 months after going cross-platform, BBM still doesn't garner much attention for its value. This isn't totally surprising seeing as it's a free app without advertising revenue. CEO John Chen has even stated there is no immediate plan to charge for BBM or even permit advertisements on Channels soon.

No less than two recent stories appeared in Seeking Alpha denouncing BBM's value. One article argued that BBM was essentially worthless, stating "be safer to discount it entirely at this point." The other article called to question the thousands of reviews at Google Play, suggesting BBM was not popular after BlackBerry faithful manufactured a fake success.

When BBM lost long-time leader Andrew Booking, some were again led to preach more doom and gloom and assign a $0 value.

The next onslaught consisted of criticisms that users tried BBM out of curiosity and promptly ditched it. Apparently, the 40 million registered users tried it as a nostalgic novelty and everyone jumped ship soon afterwards for numerous better competitors.

Today, the market hammered BBRY down 4.2% on a day when the major news highlight was the release of BBM 2.0. This update adds Voice and Channels to iOS and Android users along with numerous other bells and whistles like DropBox support. The market did not appear to place much value in this major new release.

So, is BBM both unpopular and worthless?

Popularity:

BlackBerry, iTunes and Google Play do not release up-to-date accurate statistics on BBM downloads or regular user numbers. BlackBerry typically does so at quarterly meetings and Google Play lets us know when an app crosses the 10-50 million threshold, so we will likely need to wait for accurate figures. Luckily for impatient Seeking Alpha readers, we can put this argument to rest. How so, you ask?

Rather than speculate wildly about anecdotal evidence that users are downloading it and not using it, I'll extrapolate from data we do have.

WhatsApp is more forthcoming about their registered user numbers, not surprisingly since they are the leaders, so they are bragging about it to help fuel their success. Since October, they have garnered approximately 30 million users per month and now have around 430 million active users.

Now, we just need to link WhatsApp growth to BBM, here's how. Some websites provide weekly app download numbers, so we can see relative numbers between BBM and WhatsApp and LINE etc. So what are these numbers?
1] Weekly downloads 10626 BBM vs 9777 WhatsApp
2] Google Play top communications list puts WhatsApp #3 and BBM #5

So BBM appears to be going toe-to-toe with WhatsApp even before the 2.0 release this week. What can we learn from this? BBM could be gaining 30 million new users each month. At the next quarterly reporting in March, BlackBerry could be reporting more than 150 million users after they reported their user base at 100 million in December.

BlackBerry will also be shortly releasing BBM for Android Gingerbread, which represents 20% of Android users they could not reach previously. Momentum will again be huge going into quarterly reporting and the following quarter Video may be released to continue the momentum, 200 million users at the end of 2014 appears within reach.

Value:

Other messaging services have been bought out or received bids to acquire their users, these users have values in the past ranging from: Facebook $72/user, Instagram $33/user, Skype $26/user, YouTube $83/user, Waze $20/user and Snapchat rejected a $3 billion offer from Facebook recently (they may have a similar user base to BBM now). Is any analyst assigning a value to BBM users in their stock valuations? Why are so many similar services receiving credible valuations but BlackBerry analysts so reticent when it comes to valuing a BBM user? BlackBerry share price is severely discounting BBM's user value, this could change dramatically when analysts lose this double-standards approach.

Metcalfe's law states that the value of a network is proportional to the square of the number of users. With BBM's remarkable growth over the last 4 months, this will force analysts to keep busy, especially if they surpass Kik's user base and they are bought out.

BBM also has other important intrinsic values which are indirectly adding value. Some would say it is the most important marketing tool BlackBerry has to offer and is rescuing the BlackBerry brand. BlackBerry has gone cross-platform but it typically works best on its native platform, Indonesian users may be returning to BlackBerry handsets mainly for native BBM, not BB10. Another intangible asset is BBM value to BES10, providing enhanced security and features in an MDM environment, something other MDM providers lack. Chen wants to leverage Voice and Video for enterprise users as well.

Conclusion

Its clear BBM is both popular and valuable. With Voice and Channels released this week, Gingerbread support upcoming and Video after that, it appears BBM will have a successful 2014.

For argument's sake, let's put a $50 value on these users at the end of 2014, if they achieve 200 million users by then that would value BBM at roughly 10 billion. These numbers sound astronomical, but compared to the growth patterns and values of other messenger services over the past 2 years, it is reasonable.

Analysts will likely be re-evaluating BlackBerry's worth throughout 2014 in the face of indisputable BBM success.

Disclosure: I am long BBRY. 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.