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A Change In Vision, Back In "Black"Berry.

|Includes:BlackBerry Ltd. (BBRY)
  • Why did BlackBerry crumble? From 50% market share in 2009 to less than 3% today, the company's fortunes have changed as quickly as the technology it deals in.
  • "If I cannot make money on handsets, I will not be in the handset business," Chen told Reuters - and said that the timeframe for the decision was "short.
  • Valuation multiple set to expand as the market gains a fuller appreciation of earnings growth.

Oh, how the mighty fall! Not too long ago, the name Blackberry (NASDAQ:BBRY) was synonymous with smartphones. All the top-of-the-heap execs had one. US President Barak Obama famously pleaded with his security staff to let him keep using his piece even after he became president. How does one top a product endorsement like that? Well, Blackberry could: Eric Schmidt, executive chairman at a little company called Google - which, in addition to being a search engine, was a competing cellular platform provider - also publically admitted to using a Blackberry.

Well, those were the good old days. Then the iPhone happened. And Google's Android-powered phones picked up the world over. There were fewer and fewer takers for the Canadian company's sets.

The bigger they are, the harder they fall

In 2009, the company had a 50% share of the US market; it is close to 3% now. Back then, its market capitalization was more than $48 billion; now, its market cap is $4.14 billion. Stock price has plummeted from over $83 back then, to $7.89 now.

So, tell me what went wrong again…

A number of factors came together. The first, as mentioned before, was the success of the iPhone and Android-powered phones. In 2008, Blackberry came out with the Storm, its first touchscreen phone. It didn't provide much of a competition to the new entrants into the market. Its poor touchscreen performance paled in comparison to iPhone's dreamily perfect screen.

Though things still weren't that bad at this point. Afterall, they did come up with the hugely successful Bold and they had their highest ever market cap at this point in time.

But the worst things had gotten for the company came with the outages of October 2011, when subscribers were left without the internet and instant messaging for quite a bit of time. It led to a public apology by Co-CEO Mike Lazaridis.

The lack of success of the much touted Blackberry 10 operating system. pretty much sealed the deal for the once-great company. The sets that ran it, like the Z10 and Q10, didn't do all too well, specially the former.

All of this is burning a hole in the company's pocket. It lost $711 million in 2014 alone.

And don't just take our word for it. John Chen, Blackberry's CEO put it bluntly in an interview, "I'm losing money and burning cash."

A change in vision:

Chen might be burning cash but he has some pretty good ideas, something that the company hasn't seen in a while now.

For starters, he has realized, and BBRY shareholders should kiss him for this, that his company cannot take on iOS or Android. Time to cut its losses on that front and use the bit of brand equity that it does have. And what might that be? Why security, of course. Blackberry messaging has been proven to be a hard-to-intercept platform; compared to this, the other platforms are cakewalks for hackers. Its security is so good that the company has had some prickly interaction with states trying to snoop in on some of their citizens.

Chen plans to provide that secure messaging service across platforms. Many had interpreted giving out the Blackberry service across platforms as a death-knell for the company's sets but that is turning out to be a boon for their software business.

In the new Internet of Things, network security is going to be a huge deal, for example, the medical data sent from clinical devices to doctors' handsets.

Though Blackberry leads the market of managing mobile devices' data security, it should still be on its toes: companies like IBM, Citrix and Oracle are all looking at going into the game themselves.

Chen has publically said he sell off BBM (80 million plus users) entirely if he were to get $19 billion for it. The same price Whatsapp (500 million plus users) got snapped up for. Why would someone want to dish out that much? Because the mobile security market is expected to be a $11 billion industry in 2014.

…but they still haven't given up on the phones

Blackberry is still going to be making phones. After the debacle of Z10, the company seems to have settled on the nothing-succeeds-like-success approach. They're going to introduce a new avatar of the Bold set.

It's going to be upgraded, of course, to the new Blackberry 10 OS and a reportedly larger app selection. But they're going back to some of the older features like physical controls and trackpad etc.­

"I don't have a plan to get rid of handsets, I have a plan to not be dependent on handsets," Chen said in a recent interview. "All I need to do is replace the handset revenue, and this company will be very different."

Would I buy it BBRY stock?

Well, the answer to that question, which has led you down till here, is yes. If the B2B approach takes off, which it well might, $7.89 a share would be a steal. Expect that P/E ratio, currently a little above a measly 4.6, to rise much higher than that.

Chen has turned around Sybase, a database company, in the past and sold it to SAP. And he says he can make BlackBerry profitable by 2016. We're putting our money on him.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in BBRY over the next 72 hours.

Stocks: BBRY