BlackBerry Catches a Bullish Rating

Find out what this Fool thinks about an ambitious call for BlackBerry’s stock.

| More on:
The Motley Fool

Right now, just about everything is on the table for BlackBerry (TSX:BB), as the company is still reeling from its recent disappointing earnings release last month.

Shares have pulled back into single-digit territory and are now roughly half of what they were when BlackBerry tapped 52-week highs in January. This move hasn’t discouraged one analyst. ACI Research analyst Ed Zabitsky has just started coverage on BlackBerry with a “strong buy” rating alongside a whopping $20 price target — more than double current prices.

Who’s Zabitsky?
Zabitsky was the first real Apple bear at a time when the Street was nearly unanimous in its bullishness. His “sell” rating on the Mac maker dates back to as early as 2009. Over the years, he’s maintained his stance, while his bearish thesis has evolved. He also subsequently moved his rating to a more aggressive “sell short.”

It’s true that Apple has fallen from grace over the past year, although shares never reached his $270 price target. You might argue that Zabitsky’s call was right to an extent, except that the actual rationale underlying his thesis was dead wrong. He believed that the rise of HTML5 apps would ruin Apple’s proprietary empire in favor of open Web apps. This hasn’t happened. The native iOS and Android app ecosystems are as strong as ever.

Instead, Apple’s fall has more to do with saturation in the high-end smartphone market combined with fears of margin contraction and escalating hardware competition. Zabitsky may have been right that Apple was due for a pullback, but he was totally wrong on why.

Forget BlackBerry 10
Interestingly enough, the bullishness isn’t predicated on the strength of BlackBerry 10 as a platform, nor does Zabitsky expect unit sales to rise. On the contrary, the analyst believes that BlackBerry will inevitably abandon hardware and transition to becoming a cross-platform web services player instead.

More specifically, Zabitsky is particularly bullish on the prospect of BlackBerry Messenger becoming cross platform, which is scheduled to arrive this summer on iOS and Android. Opening up BBM to a wider audience is “long overdue,” in Zabitsky’s view. He believes that Microsoft is fumbling with its Skype acquisition, since the software giant hasn’t expanded carrier relationships, which presents an opportunity for BBM.

BBM could effectively become the next Skype, Zabitsky believes, delivering voice, video, and text communications tools.

It’s all about BBM
Somehow, a free service is supposed to be at the heart of BlackBerry’s turnaround, which will double its value. BBM competes directly with rival messaging services such as Apple’s iMessage and Google‘s Hangouts, both of which are free. Both companies also have voice calling alternatives. BlackBerry has historically monetized BBM in part by bundling it with its BlackBerry Internet Service, or BIS, data plans.

This revenue stream has been under pressure from carriers, who don’t want to pay these fees and would prefer subscribers to use their own network infrastructure. BlackBerry 10 devices support generic smartphone data plans from the carriers. Investors expressed concern over BlackBery’s ability to monetize BBM, selling off shares by 4% the day the cross-platform move was announced.

However, the company did outline another way to potentially monetize the service indirectly through advertising. BlackBerry is making BBM a broader social networking platform, with BBM Channels where companies can connect with BBM users, who can follow brands that they like. Like any ad platform, business will pay for sponsored ads and other paid forms of interaction. Simply put: BlackBerry wants to turn BBM Channels into a social feed full of ads analogous to Twitter or Facebook.

The challenge there is that advertising dollars follow the users, and Facebook and Twitter already have all the users and network effects. BlackBerry now has 72 million paying subscribers. The company will need to meaningfully add free iOS and Android users if it hopes to score ad dollars, a tough proposition considering how many messaging alternatives there are. In contrast, Facebook is now up to 1.1 billion worldwide users. If you were a business, where would you advertise?

How does BBM alone make BlackBerry a strong buy? It doesn’t.

Looking for an easier road to riches than BlackBerry and its volatile stock price offers?  3 market thumping ideas are provided in our special FREE report “3 U.S. Stocks Every Canadian Should Own”.  Download this report at no charge by simply clicking here.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

The original version of this post, authored by Evan Niu, appeared on Fool.com. 

Fool contributor Evan Niu owns shares of Apple.  David Gardner owns shares of Apple.  The Motley Fool owns shares of Apple.        

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

ETF chart stocks
Investing

2 Canadian ETFs to Buy and Hold Forever in Your TFSA

I personally own both of these S&P 500 Index ETFs. Here's why.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

How Much Cash Do You Need to Quit Work and Live Off Dividend Income

Toronto-Dominion Bank (TSX:TD) pays a lot of dividend income. Can you live off of it in retirement?

Read more »

Retirees sip their morning coffee outside.
Retirement

Retirees: 2 TSX Dividend Stocks That Have Raised Payouts for Decades

These top TSX dividend stocks now have 7% yields.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, June 25

Besides Canada’s consumer inflation report, the latest U.S. consumer confidence data will remain on TSX investors’ radar today.

Read more »

An analyst uses a computer and dashboard for data business analysis and Data Management System with KPI and metrics connected to the database for technology finance, operations, sales, marketing, and artificial intelligence.
Dividend Stocks

Invest $10,000 in This Dividend Stock for $1,398.40 in Passive Income 

This dividend stock offers a whopping 11.9% dividend yield right now, with returns that should fly high for this cyclical…

Read more »

top TSX stocks to buy
Top TSX Stocks

Could This Undervalued Stock Make You a Millionaire One Day?

Looking for an undervalued stock you can buy today and hold for decades? Here's a great pick with a generous…

Read more »

An airplace on a runway
Stock Market

With Revenue Rising, Is Air Canada’s Sputtering Stock Finally Cleared for Takeoff?

Down 58% from all-time highs, Air Canada stock trades at a discount to consensus price target estimates in June 2024.

Read more »

Person holds banknotes of Canadian dollars
Dividend Stocks

This 6.1 Percent Dividend Stock Is My Pick for Instant Income

Here’s what makes Transcontinental one of my top dividend stock picks right now for instant income.

Read more »