BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) announced on Monday that it would be rolling out an aggressive buyback campaign targeting Apple iPhone users who might want to try the Passport. This plan could wind up giving BlackBerry the push it needs to really get its hardware division profitable. Because of this, I am really bullish on the company going into the holiday.
Starting on December 1, BlackBerry will start offering US$90-$400 when an iPhone is traded in for a Passport plus an extra $150. This all depends on the model of the iPhone. In the United States, the unsubsidized price for the Passport is US$599, so a user could wind up getting the device for $199.
Normally, I am hesitant about these kind of schemes, but there is significant profit on the iPhone resale market. For example, a used iPhone 5s could be worth US$200 to $250. But what this does is give BlackBerry an attractive point of entry for new consumers.
That means the company can cut the price of the phone for users and still keep the magic number of US$169, the 40% margin that BlackBerry makes for each Passport sold. This margin all ties in to CEO John Chen’s strategy. On an earnings call, he said that if the company sold 10 million devices in a year, this would allow the company to reach profitability in the hardware division. These sorts of sales make it possible to sell hundreds of thousands — if not millions — of devices in a short period of time.
Should you buy?
Even without these sales, I am a big fan of BlackBerry. The company is turning its entire business around — albeit slowly — and is working on focusing in on its niche audience.
Further, this sort of a sale shows that the company is really committed to maximizing revenue and profits. This is different than a typical sale where it lowers the price. By accepting the iPhone in return, the company is able to profit both on the sale of the Passport, but also on the resale of the iPhone.
If Chen announces that the company is breaking even on phones, I think this stock is going to accelerate aggressively. And I believe that this sale is the right step for the company to get there. I believe the company is a solid buy going into 2015.
But it’s not the only ones I think you should buy. There are a few other stocks that will make your portfolio very happy come the holidays.
