It is undisputed that BlackBerry does not come close to matching Apple’s ecosystem. However, Z10 and iPhone, when compared based on their specifications, are about even. Undoubtedly, both Apple as well as BlackBerry fans will take issue with the foregoing statement.
I am not in the business of recommending phones but rather in the business of uncovering investments that yield handsome returns. The main question for me is ‘How can BlackBerry beat Apple and generate a 400% return for investors?’
In my analysis, if BlackBerry stays on its present course, beating Apple and generating handsome returns is an uphill battle. However, there is an easy way for BlackBerry to outdo Apple where it counts.
It is no secret that Apple has a big problem in emerging markets. Apple products are simply too expensive for the masses in these markets. Apple cannot ignore emerging markets for two reasons. First, the growth is in emerging markets. Second, Apple has nearly saturated the developed world.
Unlike the United States, where some snobs would rather not be seen with a BlackBerry, BlackBerry remains popular in emerging markets.
There are plenty of Asian phone manufacturers capable of producing decent phones at low cost for emerging markets. To date such manufacturers have mostly relied on Google Android.
What if BlackBerry were to start licensing its BB10 operating system to the likes of Samsung, HTC, ZTE, and Huawei? These companies appear to be eager to reduce their dependence on Android and are likely to be eager licensees of BB10, and have proven capable of quickly flooding markets emerging markets with attractive phones. In the blink of an eye, Apple will be beat in the markets where it counts.
What will BlackBerry get out of such a licensing arrangement? Licensing will generate significant royalties and much faster proliferation of BB10.
From an investment perspective, BlackBerry will be treated mostly as a software company. Growing software companies are accorded very high P/Es. There are no direct comparisons in the mobile operating system. However, analyzing some other companies is instructive. Let’s take a look at Red Hat. Red Hat provides open source software solutions to enterprises worldwide. Red Hat trades at a trailing P/E of 73.
Salesforce.com, the granddaddy of cloud based application software trades at a forward P/E of 88.
Hardware companies such as Nokia are traditionally accorded low P/Es.
In the foregoing scenario, BlackBerry can easily earn $1.70 per share and at a P/E of 30, much lower than that of growing software companies, the stock will return about 400%.
Of course, painting a scenario is a lot easier than executing that scenario. In my 30 years in the markets, the only way I have found to catch opportunities before Wall Street is to do many, many painstakingly detailed scenario analyses ahead of the time. Such advance analyses is the key to reading the tea leaves correctly from new developments as they come to pass and act with conviction quickly and early.