It seems as though the biggest analyst takeaway from the recent BlackBerry (BBRY) Earnings call is a collective doubt that CEO John Chen can stem the tide of declining revenues. Chen has set a lofty target of achieving $600M in software sales for FY 2016, $100M of which is targeted to come from BBM monetization. How can CEO John Chen and his team pull this off?
Blackberry is currently sitting on a cash reserve of over $3.2 Billion dollars. This war chest is at the highest level in over 5 years. The cash has provided a strong defense for the stock over the last few years over worries the company would go bankrupt. Now that Chen and his team have put the company back on sound financial footing operationally it is imperative that the focus be put on stemming the revenue decline. The cash reserves need to be unleashed in the M&A front. Chen told investors on the Earnings call that part of his team's strategy to meet his software sales growth was to grow "inorganically", which is another way of stating that they are willing to buy software companies that can help them achieve the software sales goals. Recent acquisitions like the Secusmart and Movirtu have been great additions and given BlackBerry some strategic advantages. Secusmart recently partnered with IBM (NYSE:IBM) and Samsung (OTC:SSNNF) to provide an ultra-secure tablet targeted at Government and Enterprise security markets. The Movirtu play was very strategic in that it gives BlackBerry a unique position in the BYOD (Bring Your Own Device) market for Enterprise. Movirtu offers a "Virtual Sim Card" that allows multiple numbers to be active on a single device. Movirtu's Virtual SIM platform allows separate billing for voice, data and messaging on each number being used on a device.
Buying up several small start ups or even medium sized publicly traded companies that can help separate BlackBerry from its competition and instantly help it achieve its revenue goals is exactly what the market needs to see. Smaller start-ups like WatchDox would be a great fit to the BlackBerry arsenal. WatchDox specializes in document encryption so that document authors can administer access and secure files , even remotely. A few key acquisitions like this can contribute to achieving the FY 2016 revenue goals and help solidify long term growth for the future and in the process alleviate analyst and investor fears.
Chen stated that BBM monetization would contribute $100M towards the $600M revenue in software. There was some indication that they were gaining some traction in this area with the news that there were over 20 billion Ad Requests per month. Chen also outlined some progress in selling BBM stickers and custom pins. BBM Protected and BBM Meetings are two areas I expect the lions share of BBM revenue to be realized.
BlackBerry has had some recent success in partnering agreements with Samsung and Google (NASDAQ:GOOG) with its BES 12 offering in MDM. I believe this same strategy needs to be applied to BBM in order to fully exploit its potential.
In my view, LinkedIn (LNKD) is a prime candidate for BlackBerry to pursue a strong partnership with. Both companies have a strong Enterprise focus. By partnering with LinkedIn, BBM could become the messaging platform for the social media giant much like Facebooks (NASDAQ:FB) Messenger app. Premium LinkedIn members could enjoy access to BBM Meetings and BBM Protected as a perk to being a paid premium member. The advantage to Blackberry is access to the 347 million strong and growing LinkedIn users. These users are also the very audience BlackBerry is targeting in Enterprise. Its a win/win scenario for both companies and targeted at the same user base both companies cater to.
If Chen and his team can pull off a few key acquisitions and partnerships by spending some of the large cash reserves they have accumulated it can quickly change the sentiment on Wall Street. Investors who believe that Chen can pull this off have a great opportunity to go long right now with the stock trading near its 2015 lows. Chen has a strong history of turning around a struggling software company and his actions to date have been strategic and well thought out which leads me to believe he will execute on revenues as well.
Disclosure: The author is long BBRY.
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