Will the Priv Be Enough to Send BlackBerry Ltd. Shares to New Highs?

BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) shares surged when it officially released the Priv on Friday. What effect will it have on the company’s bottom line?

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On Friday, the Priv, BlackBerry Ltd.’s (TSX:BB)(NASDAQ:BBRY) new Android-powered handset, officially went on sale in the United Kingdom. It boasts such features as an 18 MP camera, one of the biggest batteries in the market, and BlackBerry’s signature physical keyboard, which slides in and out, so users don’t have to sacrifice the size of the screen.

The unit also officially went on pre-order in North America on Friday with shipping estimated during the final week of November. The price tag for the device is US$699.

Shares of BlackBerry shot up nicely on Friday as well, closing the day more than 6% higher, largely on expectations that the Priv will at least be a modest success. At this point, all BlackBerry’s handset division needs is a minor hit to make a difference to both the top and bottom lines.

One of the main knocks against BlackBerry’s previous handsets has been a lack of apps. Since the BlackBerry operating system only commands a fraction of the market, developers focus their attention on making apps for Android and Apple-powered devices. This leaves BlackBerry users with a noticeable lack of apps.

Is the Priv the beginning of BlackBerry finally turning the corner on its struggling handset business?

Handset struggles

It’s hard to comprehend just how far BlackBerry has fallen from its peak without looking at some cold, hard numbers.

In 2009, when the company was at its peak in terms of market share, it had nearly 20% of the total worldwide smartphone market. It shipped 34.5 million phones that year, and then followed it up by shipping 48.8 million handsets in 2010 as the size of the smartphone market exploded. The year after that, 2011, was another nice year, because the company shipped 51.1 million units.

Fast forward to 2015. Over the last four quarters, the company has shipped just 5.2 million units. That’s a decline of nearly 90% from the peak. And in that time the overall smartphone market has gotten much bigger.

And according to recent research, Samsung’s Tizen Operating System just recently surpassed BlackBerry’s OS as the world’s fourth largest. Remember, most of Samsung’s devices run Android. Tizen only powers some of its smartwatches and other mobile devices, mostly phones sold in India.

As bad as that all sounds, it’s actually good news for folks getting into the stock now. All BlackBerry needs is for the Priv to do moderately well–at least compared with other phones out there–to have an immediate effect on the bottom line.

Think of the Priv not as the company’s saviour, but as a nice option on the smartphone market. Like many options, this one might not pay off, but investors are getting it essentially for free, while investing in what I think is the future of the company: software.

Software successes

It’s obvious after taking a look at the numbers that the future of BlackBerry is in software, not hardware.

In the most recent quarter, software sales were just $73 million compared to $201 million for hardware and $211 million for service access fees. But both hardware and service access fee revenues were down some 50% compared with the year before, while software sales were up nearly 18%. Over the last six months results are even more striking, with software revenue up 79.5% compared with the same period last year.

CEO John Chen knows this better than anyone, even if he’s publicly saying the right things about the handset division. He recently made the decision to spend US$675 million on two companies in the software space. Both companies are expected to add to BlackBerry’s bottom line soon.

Even after paying for both of those acquisitions, BlackBerry still has a mountain of cash on the balance sheet. Look for the company to keep making acquisitions to make its software division better as well as perhaps accelerating its share-buyback program.

The Priv has the potential to be a minor hit. That would be good news for BlackBerry shareholders and would likely help the company finally break back into consistent profitability. But software is the key to the future, not hardware.

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 Nelson Smith owns shares of BlackBerry. David Gardner owns shares of Apple. The Motley Fool owns shares of Apple.

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