"What kind of reputation does BlackBerry have out in the market? We are viewed as secure, we are viewed as having very high-quality devices and we are being used by mostly enterprises and so when I look at the situation I think we are going to offer end-to-end security solutions in communication productivity that is mobile based ... at least for next couple years."
-John Chen - CEO, BlackBerry
In the interest of keeping my perspective open, I wanted to take another look at BlackBerry (BBRY). If you read my last article, you would know that I'm bullish on John Chen and his plan for the company going forward. I think there is a very good chance that he is going to turn the company around and create shareholder value in 2014.
If you've watched BlackBerry trade toward the end of 2013, you would have noticed that the market seems to have the same kind of confidence behind John Chen. While volatility has caused the stock to give back some of its gains from December, and even though 2013 resulted in a 40% drop in the stock price, there seems to be a new energy behind the bullish argument for BlackBerry once again. So much of this, as I predicted in a previous article, comes not just from the plan going forward but in having any plan and having some confidence behind it.
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For those of you who listened to BlackBerry's last conference call, the tone of voice and the confidence coming from the company's newly appointed CEO should have been the first thing you noticed. Not only did Chen present and lay out his plan, but he got so confident in himself that he was even making jokes. At one point, he commented that the lawyers were probably cringing because of how many bullish forward-looking statements he was making. The company's securities lawyer was probably not having a good day - I agree.
However, for analysts and investors who were listening, this was music to their ears. It was very clear after that his statements resonated, as displayed by the stock moving upwards to the tune of roughly almost 30%, before correcting on Thursday of this week and settling around the $7 region.
So, it's easy to get behind BlackBerry in 2014. They have a chance of being a real underdog story as long as the macro markets hold up.
While performing a SWOT analysis of the company, I found myself trying to identify the main challenges that the company is going to have to get over in 2014. Here are the three barriers that I believe stand between BlackBerry and both short-term and long-term success.
1. Tarnished Name
The company name is an issue that has held back several companies from success. Notably, companies like J.C. Penney (JCP) are unable to turn their brands around or rebrand due to the stigma that is attached to their names. I wrote a previous article identifying several companies that went under because instead of rebranding and restructuring they were relying on the iconic status of their name to be the savior of the company. What we found out with Kodak is what we are going to find out with J.C. Penney, and what we're eventually going to find out with Sears (SHLD): sometimes failure is in the cards of the brand name.
Having said that, BlackBerry's name right now is synonymous with failure. The name conjures up images of the dated technology that is no longer mainstream, nor available. For all intents and purposes, the BlackBerry name may need to change - again.
When the company changed its name from Research in Motion to BlackBerry, they were trying to shake the negative stigma attached to the company. They had a chance to execute with the BlackBerry 10 and were unable to do so and create a new image for the company.
Many bears on BlackBerry have pointed out the possibility of the company changing its name going forward. At this point, I don't think it should be out of the question. Or, instead of changing the name of the company, when BlackBerry decides to launch a new product the focus should be around branding of the product name as opposed to the BlackBerry name.
2. Momentum Against Them
Let's face it. The company is moving uphill right now. The company has been facing a major uphill battle for the last several years. And, in keeping with the analogy of moving uphill, if the company cannot pull this ball over the apex of the hill, it has a long way down to go if it fails. Conversely, if a company can swing the momentum to the downside of the hill, it should be able to find success that builds upon itself if it does generate some small short term wins.
One of the major issues, aside from the fact that the name is tarnished, is the fact that all types of momentum working against the company right now. This is a company that is guilty until proven innocent, and not the other way around. BlackBerry has something to prove.
The fact is that the mobile phone market is not one that changes instantaneously due to new products coming or going. The nature of the sector is such where two-year contracts are the norm. What this means is that the company cannot come out and change the mobile phone momentum overnight. It has to be a sustained push, and the company is going to have to continue to ride out today's customers leaving over the coming years. In other words, the company may have continuing losses on paper, but they won't be realized to the tune of canceled contracts for potentially months to come. The company needs to weather this storm.
What is it going to take to shift this momentum? It's going to take sustained execution over the span of the next 2 to 4 years to swing the momentum back to the company and allow BlackBerry to coast down stream - as opposed to against the current.
When BlackBerry can turn the momentum, they're going to build success.
3. The Appearance of Being Having Their Hand Forced
The enterprise idea is a good one. It is an idea that is cogent, prudent and makes sense. The company is sticking to what it's good at. I can't tell you how many times over the last year I've read articles by analysts who have argued that the company do exactly what it is doing right now. Playing to its strengths is the right thing to do for BlackBerry.
Having said that, it could potentially be misconstrued as desperation due to the fact that security and enterprise really seem to be the last out for the company. While it might give the appearance from the outside that the company's hand was forced, it doesn't take away the fact that enterprise and security were simply the best chance that the company had.
As the company moves forward, it's going to be important for John Chen to continue to reiterate that this move was based on common sense and was in the best interest of the company - even if it was the only real option remaining for the company.
Conclusion
BlackBerry is still a cheap company to own at its current valuation.
The company continues to trade at about 80% of its book value. If Chen can execute with a fresh start in 2014, BlackBerry could easily push back toward the $10 region by mid-year. However, there's still a substantial amount of risk investing in BlackBerry - these three barriers all stand in the way of the company finding sustained, long-term success.
But with big risk comes big reward, and BlackBerry might just have a small place in my portfolio going into 2014. Best of luck to everyone willing to take a chance on Mr. Chen and his cleanup of the company - it would be great to read a success story here eventually. I'm rooting for BlackBerry.
Happy new year and best of luck to all investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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...)
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