BB10: Blackberry’s wild card
In its attempt to make a comeback, Research In Motion Ltd (NASDAQ:BBRY) came up with a new operating system the BB10. The first quarter after its release of the Z10 smartphone it reported a net profit of $98 million in the latest quarter up from $9 million in the previous quarter and a loss of $125 million in the quarter before that. It sold nearly 1 million Z10 devices even though it was launched in the U.S. near the end of the quarter. Over 55% of Z10 buyers were coming from other platforms, which shows Research In Motion Ltd (NASDAQ:BBRY) has finally got it right. Not to forget there are a lot of BlackBerry loyalists who love their best-in-class physical keyboard and have therefore not bought the Z10 in anticipation of the qwerty Q10. The Q10 is set to go on sale in the U.S. by the end of May for around $249. The Q10 is selling extremely well in the UK and Canada and is amongst the fastest selling phones at Selfridges.
The BB10 devices will have a personal assistant named Viki just like Apple’s Siri. Siri has been a huge catalyst for Apple phones so it goes without saying that Viki might further boost the already promising BB10 device sales. Even Google Inc (NASDAQ:GOOG) tapped into this new innovation and created Google Inc (NASDAQ:GOOG) Now. Google has also received a nod from Apple Inc. (NASDAQ:AAPL) to incorporate Google Inc (NASDAQ:GOOG) Now into apple’s latest iDevices. Aside from Viki, BlackBerry has been further strengthening functionailty by expanding its app base to 100,000 apps from 70,000 at the launch of BB10.
Not to forget, Research In Motion Ltd (NASDAQ:BBRY)’s security is still the best in the industry. It got its BB10 operating system authorized by the U.S. Department of Defense for agency use.
Improving margins
The company posted a gross margin of 40.1% in Q4, up from 30.4% in the third quarter. The factors that led to the change were the cost cuts coupled with new high-margin phones.
It cut its operating expenses to $4.7 billion for fiscal 2013, from $5.1 billion the previous year and plans on reducing the headcount by 30% by the end of this year.
The BB10 devices are amongst the highest earning phones for the company. At the same time it is important to note that Apple Inc. (NASDAQ:AAPL)’s margins have been declining. From 50% in 2011 Apple’s margins have now declined to 37.5%.
Big orders lining up
The company is on a roll and has been receiving bulk orders from big corporate houses. There is an order for 1 million Z10 devices by Brightstar Corporation.
The company also secured its biggest corporate order for 3000 BlackBerry10 devices from Canadian Tire Corp.
Telefonica received a loan of $265 million from the Canadian government for BB10 devices.
The German government has ordered 5000 Z10 devices.
Seems undervalued when compared to peers
| Company | P/B | P/S | EV/EBITDA | ROI |
|---|---|---|---|---|
| BLACKBERRY | 0.85 | 0.63 | 4.39 | 22% |
| AAPLE | 3.54 | 2.47 | 6.61 | 30% |
| 2.98 | 5.14 | 13.32 | 16% | |
| NOKIA | 1.21 | 0.33 | 4.36 | 2% |
With the global smartphone sales expected to exceed 910 million units in 2013, even if Research In Motion Ltd (NASDAQ:BBRY) could garner 5% market share as some analysts expect, this would lead to sales of over 42 million units.
Even though BlackBerry doesn’t boast of a market share as that of Apple and Google, its valuation looks cheap when we take into account the BB10’s bright prospect.
BlackBerry has over $2.65 billion in cash and zero debt, which makes it a stable company financially.
Short squeeze in the making
BlackBerry shares have a short open interest of over 30%. As the BB10 device gains market share and the company’s profitability further improves, the stock price will start climbing upwards slowly and the short sellers covering their losses might further boost the rally exponentially.
Research In Motion Ltd (NASDAQ:BBRY) seems undervalued to major analysts as well. Analysts at Morgan Stanley expect a 35% upside from here to $22. Prem Watsa’s Fairfax Financial which holds a significant share in the company intends to to hold long term, believing the fair price to be around $40.
Foolish takeaway
Research In Motion Ltd (NASDAQ:BBRY) seems to be getting back on its feet with key innovations and smart management. The coming quarters are going to be the testing period and if it passes the test, then shareholders will be in for a treat. Its balance sheet is clean with ample cash and zero debt which further stabilizes its foothold. I think this stock deserves a small percentage in your portfolio.
Minu Agarwal has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google.
