{"id":39509,"date":"2013-07-01T12:37:39","date_gmt":"2013-07-01T16:37:39","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=39509"},"modified":"2013-07-01T12:37:39","modified_gmt":"2013-07-01T16:37:39","slug":"blackberry-after-the-rout-worth-a-look","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/07\/01\/blackberry-after-the-rout-worth-a-look\/","title":{"rendered":"BlackBerry After the Rout: Worth a Look?"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

BlackBerry ($<\/span>BBRY<\/a>)<\/b> shares fell off a cliff on Friday morning, down more than 25% after 1st<\/sup> quarter earnings were released, and through mid-morning on Monday they hadn’t recovered much. \u00a0It appears that the \u201cmake or break\u201d BB10 operating system is looking like more of a break than a make.<\/p>\n

BlackBerry sold 2.7 million BB10 devices in the quarter\u2026which was about a million short of Wall Street estimates.\u00a0 And BB10 phones made up only 40% of total phone sales\u2026meaning that the company is still having to lean heavily on its older, lower-margin models to keep volumes up.<\/p>\n

When a stock loses a quarter of its value in one day, it\u2019s tempting to go bargain hunting.\u00a0 After all, this is a company with half of its market cap in cash trading for just 57% of book value\u2026a book value that may be understated based on the value of BlackBerry\u2019s patent portfolio.\u00a0 And after a rout like this, surely all of the bad news is already priced in, right?<\/p>\n

If you want to play a dead-cat bounce here, be my guest.\u00a0 But view this for what it is: a short-term contrarian trade and not<\/i> an investment.<\/p>\n

Let\u2019s step back and consider BlackBerry\u2019s plight.\u00a0 The company has sunk into that nightmare scenario of being \u201cstuck in the middle.\u201d\u00a0 Its high-end phones are not selling well vs. Apple\u2019s ($<\/span>AAPL<\/a>)<\/b> iPhone or the top-line Samsung Galaxy line running Google\u2019s ($<\/span>GOOG<\/a>)<\/b> Android operating system.\u00a0 And at the low end, it is getting out-priced in both developed and emerging markets by a flood of cheap, entry-level Android devices.<\/p>\n

As for the enterprise market\u2014an area I once considered a \u201cmoat\u201d for BlackBerry\u2014BlackBerry\u2019s device management still remains one of the best options.\u00a0 But this clearly hasn\u2019t arrested the decline of handset sales, and the company\u2019s overall subscriber base is falling.\u00a0 Meanwhile, government and corporate clients who once valued the security of BlackBerry\u2019s network have over the past five years of subpar product offerings found ways to accommodate iPhones and Androids.<\/p>\n

Sadly, BlackBerry\u2019s network infrastructure\u2014once the envy of the mobile world\u2014has now arguably become as much of a liability as an asset.\u00a0 Remember that week in 2011, when BlackBerry\u2019s network went down? That was a turning point for many buyers for whom the \u201creliability\u201d of the network was a selling point.\u00a0 By today, BlackBerry has sunk so far in terms of relevance, a major service outage<\/a> earlier this year barely made the news.<\/p>\n

So, BlackBerry\u2019s captive enterprise customer base continues to shrink even while its handsets are bombing with the general public.\u00a0 This would be a tough situation for any company, let alone one in a fast-changing industry dominated by fickle consumers.\u00a0 And when you consider that they are fighting for third place with a newly-assertive Microsoft ($<\/span>MSFT<\/a>)\u2014<\/b>one of the biggest and best-capitalized companies in the world \u2013BlackBerry\u2019s chances of success get even slimmer.\u00a0 Microsoft, though still a small player in mobile, can offer a phone that complements its ubiquitous Windows PC operating system and the expanding Microsoft ecosystem. \u00a0Microsoft can also afford to throw money at its mobile platform until it gets traction…even if it takes years.\u00a0 BlackBerry cannot.<\/p>\n

This is all a long way of saying that, while appearing cheap on paper, BlackBerry is not an attractive investment.\u00a0 It is a value trap that gets weaker with each passing quarter.<\/p>\n

At some point, BlackBerry would be worth buying for its cash and patents alone.\u00a0 At, say, $5-$6 per share, a corporate raider could potentially buy the company, chop it up, and sell it for spare parts at a handsome profit\u2014assuming Canadian regulators let that happen.\u00a0 Or, a larger tech company could buy BlackBerry and absorb it.<\/p>\n

But at today\u2019s price, investors face the prospect of watching management destroy more value trying to resurrect a company that is past the point of fixing.<\/p>\n

If you\u2019re a short-term trader, you can try your luck at playing a dead cat bounce.\u00a0 But longer-term investors should stay away.<\/p>\n

Sizemore Capital is long MSFT.<\/p>\n

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