When John Chen took over as CEO of BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY), everything was going wrong for the company. Revenue was shrinking, losses were piling up, and the company had no focus. The balance sheet was a mess and the company’s very survival was in serious jeopardy.
To give Mr. Chen credit, he has fixed all of these problems…except one. BlackBerry’s revenue is still shrinking, and quickly. Just last quarter total sales decreased by a third year over year.
To reverse this revenue slide, Mr. Chen is counting on software. More specifically, BlackBerry is targeting US$500 million in software-related revenue this fiscal year, which would be more than a 100% gain.
This is not going to be easy, and the biggest reason may be very simple: the BlackBerry brand is beyond repair.
Is the brand damaged on the software side?
When Mr. Chen took over, BlackBerry was in a vicious spiral. Customers were switching to other devices, causing sales to drop. As news surfaced that BlackBerry’s market share was declining, it damaged the company’s brand. In other words, people reading the headlines thought to themselves, “Everyone else is dumping BlackBerry, so maybe I should too.” This caused sales to drop further, and so the cycle continued.
This downward spiral remains today for the handset business, but there’s a more important question: Is the BlackBerry name impeding its software sales?
The answer may very well be yes. Both Morgan Stanley and Goldman Sachs have reported that BlackBerry’s software offering has been slow to catch on. Making matters worse, competition is on the rise, with Microsoft and Google making a serious push in this market.
Can you get fired for hiring BlackBerry?
Have you ever heard the phrase, “Nobody ever got fired for hiring IBM?” It’s a very powerful message that implies that well-established companies have a better chance of winning new customers.
BlackBerry does have one leg up on the competition: security. In an era where cyber-attacks are far too common, BlackBerry’s security advantage cannot be understated. So, does that mean you can’t get fired for choosing BlackBerry?
I think you can. Remember, BlackBerry’s declining handset business makes the company look bad, even as it becomes more profitable. Chief Technology Officers may view BlackBerry’s software as riskier, even if it is more secure. If I were a BlackBerry shareholder, this would be a major concern of mine.
What should you do?
At this point, I wouldn’t buy BlackBerry shares just yet (see this article for a more detailed explanation why). To put it simply, I think software sales will disappoint and the stock price could take a hit as a result.
That said, BlackBerry has some very valuable assets, which should be appealing to any potential acquirer. Remember, any acquirer would likely have a stronger brand than BlackBerry, and thus, could make better use of the company’s assets. So, there may be a better opportunity to buy BlackBerry down the road. You just have to be patient.
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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.
Fool contributor Benjamin Sinclair has no position in any stocks mentioned. David Gardner owns shares of Google (A shares) and Google (C shares). Tom Gardner owns shares of Google (A shares) and Google (C shares). The Motley Fool owns shares of Google (A shares), Google (C shares), and International Business Machines.