Last week there was big news of Michael Lazaridis, the co-founder of BlackBerry (BBRY) reducing his stake to under 5%. He also came out and said that he had no plans to make a joint bid for the company as a whole (yet he left himself room to make an offer for part of the company).
Lazaridis and his Co-CEO, Jim Balsillie stepped down from BlackBerry in early 2012 after leading the company to multiple quarters of losses and decreasing market share. At the height of the joint-bid, Lazaridis and another partner, Douglas Fregin (another co-founder) owned a combined 8% share in BalckBerry.
But, as of last Monday Lazaridis sold 3.5M BlackBerry shares (there are roughly 525M shares of BlackBerry). This means he sold just about 00.66% of BlackBerry's shares in the week - what is the big deal and why is it getting so much attention?
I believe that this transaction marks the turning point in BlackBerry. The previous executives are stepping out of the picture (since Lazaridis now owns less than 5% he no longer is required to report to the SEC if he sells stock), and the new ones are taking control.
Lazaridis and his other co-founders fell off of the bandwagon the last few years of their roles as executives, keeping out of touch with BlackBerry and its businesses. Because of the events that occurred when he was an executive, I believe that his sale might not be justified now that he is no longer "inside BlackBerry" and that the general investing community should not blindly follow his actions.
The company is now under the command of John Chen, noted for turning around Sybase (SAP). He is bringing with him a new executive team, along with the a plan he revealed in BlackBerry's Q3 FY 2014. Chen was able to admit BlackBerry's lackluster performance in its handset business, which has fallen far behind Apple (AAPL), Google (GOOG), and Nokia (NOK) in terms of sales and market share. As many people have said, BlackBerry's technology might not be lackluster, but it is the way that BlackBerry is marketing it.
On his first BlackBerry conference call, he addressed this issue by announcing a deal they struck with Foxconn (OTC:FXCOF) to manufacture and design their lower-mid range phones. Not only will this deal increase BlackBerry's margins because of cheaper components, but will also allow BlackBerry to cut its costs through saving on labor and allow BlackBerry freedom from managing inventory (Foxconn designs and manufactures). I believe that BlackBerry is now using other company's' innovations to help them grow and catch up. They are using the same manufacturer as Apple, Foxconn, and are transforming into a software and service company like Google.
What's BlackBerry Worth?
There will be a much better picture of BlackBerry's turnaround and value after several key events in 2014, including CES (Consumer Electronic Show) in January where it will reveal "New Technologies" and business for QNX, updates on BBM pre-installation on Android, and Q4 where it will provide an outlook for FY2015.
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As you can see, the Service revenue represents more than the Hardware revenue this quarter, perhaps the future for BlackBerry.
BlackBerry is now divided into 4 major groups (Enterprise Services, Messaging, QNX, Devices), though it plans on cutting costs all around.
John Chen announced that they expect profitability by 2016, the news all BlackBerry investors were waiting for. No longer will BlackBerry have to trade based on its declining balance sheet or declining sales; instead it will be able to grow its value and trade based on profits.
However, we are assuming that John Chen's prediction comes true, and in the time frame he predicted. I believe that BlackBerry can become profitable in 2014 based on John Chen's plan and the results of the quarter under his belt. BlackBerry is now making most of its revenue from software, which comes with higher margins, as well as moving over low-mid range phones to Foxconn. This move allows them to get rid of most of the risk associated with low margin phones.
BlackBerry lost $354M in the quarter (excluding the write off), which will surely shrink in Q4, and maybe even disappear by FY 2015.
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BlackBerry plans to cut 50% of operating expenses with 4,500 jobs by the first quarter in FY2015. That is less than 6 months away, which would be in the middle of 2014. Just cutting Operating Expenses by 50% (without the write-down) would be over $500M in savings, putting BlackBerry roughly $150M in the Black (in just ONE quarter)!
BlackBerry is in the process of turning around its margins, and should begin to see profitability sooner than Chen announced. Chen has said that BlackBerry is a financially strong company, with over $3B in cash (and counting). With BlackBerry expected to grow its cash position in Q4 FY2014, improve margins in the next two quarters, and introduce new phones and technologies (QNX), I believe it is worth to hold on to BlackBerry shares until FY2015 (the middle of 2014).
With very little downside for the coming months, and new products and cash to back growth, BlackBerry looks like it will be entering profitability again very soon. The sale of stock by previous executives shouldn't be a sell signal, but maybe even the opposite. BlackBerry is moving in a different direction than the previous executives lead it and want it to be in, transitioning BlackBerry into a new era.
Disclosure: I am long NOK, BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
Additional disclosure: I recently re-entered BlackBerry shares, and believe that shares should be worth hanging onto into the middle of 2014. This is my own opinion.
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