Blackberry Resuscitated?

It’s not often you see a company rally despite declining earnings, especially a company that is in the process of overhauling its business model! Nonetheless, that that is exactly what is happening with Blackberry under the guidance of recently appointed CEO John Chen.

Blackberry continues to fall short on earnings no matter how much management tries to manage expectations, and that is likely to continue for at least the next few quarters. Fortunately for Mr. Chen that does not seem to be impacting its’ share price as investors are no longer judging the company on its hardware business. The current focus is on Blackberry’s BBM mobile messaging software.

The company is trying to rebrand itself as a developer of messaging apps for the Android and iPhone markets. Its’ latest and most intriguing apps are the BBM Voice, BBM Channels and BBM voice notes.

The objective is to engage users to share content via BBM as a VoIP (voice over internet protocol) service. If there is a successful uptake by users, then Blackberry can turn its attention to monetizing the service. At this stage, Mr. Chen is getting a pass as he tries to guide a much leaner company through uncharted territory.

The company’s shift has attracted the attention of some large players, most notably activist investor Dan Loeb, who manages the Third Point LLC hedge fund. Like the rest of the market, he is giving the company some wiggle room but eventually will probably want management to spin off BBM as a separate company.

Complicating matters was the recent resignation of Andrew Bocking, who was the executive in charge of BlackBerry’s BBM. That may have been late stage housekeeping, as Mr. Bocking was a key player under the Thorsten Heins administration. Like most new leaders, Mr. Chen will want to put into key positions his own team, but it does raise the level of uncertainty which may well shorten Blackberry’s honeymoon period.

In my mind, this is a last gasp from a great Canadian company. I hope it works, but a lot of things will have to fall into place before shareholders will see any real profits from this division. At some point, BBM will have to produce real earnings or the momentum that is currently driving up the shares will be lost.

If you want to bet on BBM you can buy the stock, but given the real possibility that the company will not produce much in the way of earnings for the next few quarters, you would be buying on the basis that the market will continue to cut the company some slack.

As such, you might think about writing covered calls as the premium on Blackberry options are in the top quartile of all Canadian options. At least you can generate some cash flow while you wait for the BBM saga to unfold.