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What's BlackBerry Worth and How Far Can It Go? A Contrarian Take


While shorts may have the mobile device industry right, the market has the BlackBerry wrong.

BlackBerry (NASDAQ:BBRY) has been one of the most controversial stocks in the past two quarters.As of April 15, short interest on the stock was at 174,340,145 shares, or about 33.2% of outstanding shares (including TSX shorts). For context, as of the same date, short interest in JC Penney (NYSE:JCP) is 25.6% and the short interest in Herbalife (NYSE:HLF) is about 30.6%. Considering the mobile device landscape, it may seem like BBRY would make for a great short. Heavy competition compresses margins and earnings plateau (at best). While shorts may have the industry right, I've set out to convince readers that the market has the company wrong. Here is my fundamental, yet contrarian, take on BBRY valuation and prospects.

Getting the Business Right

Over the last quarter, it's clear that the market has predicated the survival of the company on the success of the BB10 series (Z10 and Q10) as a mobile phone. While device sales will certainly have a meaningful impact on free cash flows for the foreseeable future, part of my point is that the company is valuable with no devices at all. The other part of my point is that the Z10 and Q10 aren't really comparable to the Apple (NASDAQ:AAPL) iPhone or any of the Samsung (OTCMKTS:SSNLF) products; it's not really a phone. Back in 2010, BBRY acquired a little Canadian software company called QNX for approximately $250 million.

To sum up what QNX allows BBRY to do, consider Apple's iCloud (singular). The iCloud stores everyone's media and allows them to access it via the Web almost anywhere. QNX allows everyone's home computer to be their own little cloud, and the Z10/Q10, using QNX, allow you to connect your PC wirelessly to any device with QNX. The two key differentiating factors between this and iCloud is that the iCloud only stores media that runs on software designed by Apple (i.e., Numbers, Pages, Keynote, iTunes, etc), and it's all stored on a single server (or family of servers). This is not computing, and therefore not mobile computing. This is Dropbox for Mac only…and even Dropbox works better.

Rather quietly, BBRY has both outlined what true mobile computing means, and patented the stage to make it real. Imagine taking your computer tower, putting it in your pocket, and taking it with you anywhere you go and connecting it securely to almost anything. That 'pocket tower' is the Z10 and Q10, and this is why they aren't phones.

Now that I've made my defense of the devices, let's look at what else QNX is good for. QNX is the platform that BES (BlackBerry Enterprise Service) 10 operates on. In other words, it is the platform for its legendary security. Currently, BES generates around $100/year/subscriber with near 90% margins. At present, BBRY competes on this security and has now made it available for Android and iPhone users. The entire corporate side of the smartphone market can now enjoy BlackBerry security, even if they do not own a BlackBerry. This is why the company is valuable, even without the devices. So let's dig into BBRY valuation.
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Author Max Moore has a position in BBRY.
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