BlackBerry: Will BBM Be The Future Of This Company?

| About: BlackBerry Ltd. (BB)


BBRY Is Partnering With Emtek On Enhancing BBM In Indonesia.

Near-term positive but may be too late. However there could be opportunity in North America if BBRY executes.

Remain bearish on BBRY. Software unbundling is a smart move but timing is far from perfect.

BlackBerry (BBRY) announced a partnership with Indonesia-based PT Elang Mahkota Teknologi Tbk, or Emtek, that will provide cross-platform BBM users with access to mobile content and service such as O2O, payment and media content. This is another step that BBRY is taking to advance its mobile messenger platform for the current mobile ecosystem. Given that both the services and the handset revenue are in a structural decline, software and BBM will be increasingly important for BBRY's sustainability.

Indonesia is an ideal place for BBRY to push this initiative given that two-thirds of the global BBM users are located in the country (60m out of 90m). A successful enhancement of BBM could potentially drive content and advertising revenue for BBRY, but I question whether it is too late for BBRY to stage this turnaround given that the current mobile messenger space already has a group of established incumbents including Facebook (NASDAQ:FB), Tencent, LINE and Kakao.

Although smaller players such as Kik and BBM continue to fight for relevance, their network effect appear to be less competitive and I believe that their users will eventually gravitate towards the larger properties that offer far more superior mobile ecosystem. Simply put, I do not expect BBRY to create an app that is competitive against the established players and I will continue to avoid BBRY in favor of FB and Tencent being the best companies to play this theme.

BBRY will work closely with Emtek's digital content arm which has invested in TV content, web properties and free-to-air TVs that have more than 100k hours of TV and premium contents. In addition, the BBM API will be available to Emtrak to accelerate their partnership growth in the region. More important, the partnership can maximize the potential of BBM with new content (ie. Music streaming, sports, news), payment, O2O commerce and commerce. Essentially, BBRY wants BBM to come evolve into a platform similar to that of Wechat, an ambitious goal that BBRY may not be able to achieve given the current competitive dynamic. In the US and Europe, Facebook and Whatsapp dominate the mobile messaging space. Tencent owns China while LINE and Kakao dominates Japan and Korea. Indonesia appears to be the only place where BBM could excel but I do not see much upside beyond Indonesia.

However, there could be a window of opportunity for BBM if it executes on integrating all the services into the app and replicate the Wechat model in North America, where surprisingly FB has been slow to adopt. This will require considerable near-term investment but a successful rollout featuring O2O (partnership with Groupon and Yelp?), payment, media and so forth could gain some traction with a high degree of marketing since BBM is a standalone app. The unbundling of the BBRY ecosystem by making the BBM a standalone product was a smart move in my view but came too late to save the company. This is something I have previously argued for Apple (NASDAQ:AAPL) to unbundle its software to defend its declining hardware sales trend.

In conclusion, the Emtek partnership is an incremental positive but Indonesia is too small of a market and that BBM needs to expand aggressively in North America to offset the hardware and services decline.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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