Blackberry (BB)

I don’t want to shock you, I’ve already shocked myself. But I’m about to recommend Blackberry as a stock buy. If you’ve been a long term client of ours at Capital 19, and been reading our Catch Up and stock recommendations for the last decade or more you might have just fallen off of your chair. And no, I haven’t taken leave of my senses. Blackberry as we used to know it no longer exists. Instead, they have managed a full 180-degree pivot to turn into quite a little innovative tech company with the potential to take on the electric vehicle industry amongst other markets. This one’s for you, Matthew.

Matt loved his Blackberry phone. It was the “must have” accessory for every businessman or businesswoman to show you meant….. well, business. It was the phone with a tiny little screen and a tiny little keyboard, with keys so small you needed the fingers of an eight-year-old girl to be able to successfully type anything. It originally evolved from the pager and was a great way for people to send and receive emails on the run. It was way ahead of the other phone providers at the time. The old school Nokias with their number pad typing system just didn’t cut it anymore.

Then in 2007, the arrival of the first iPhone changed everything. At first Blackberry executives didn’t see the iPhone as a serious challenger for their business. Neither did Matt. There was no keyboard, it had a screen so large it would no doubt destroy the battery within thirty minutes, there was no messaging service, and to top it all off it included a full web browser which would slow down the phone to unthinkably slow speeds and cost a fortune in data. What a bunch of idiots these Apple guys were.

Well, we all know what happened next. The iPhones weren’t slow they were lightning fast, the screens were touchscreen and had keyboards built into the operating system, and the world was in the process of switching away from dial-up internet and into the much faster broadband – perfect for phones with internet access. Then Apple, much to the chagrin of its partnered phone companies, started up its own messaging service which could be used across multiple devices. The iPhone was the ultimate Blackberry killer.

The diehards held on of course. Matthew kept using Blackberrys until they had been socially unacceptable for at least 6 or 7 years. But eventually, the Blackberry Messenger service was the only valuable thing the company owned. And when Whatsapp ripped off the entire Blackberry messaging system and sold it to Facebook for $19 billion the game was over. Blackberry ceased making phones in 2016 and the company was done and dusted. Or so we were led to believe.

In 2009 Blackberry was the fastest growing company on the planet. At its peak in 2011 revenue was around $20 billion, and they were shifting upwards of 50 million phones a year. These days its entire market cap is only $6 billion. Back in 2008, the stock was trading at an all-time high of $146, it’s now at a much more humbling $10. Today there’s not a mobile phone in sight, although Matthew will be happy to know that there may be one coming later in the year. Not by Blackberry themselves, but licensed out to a company called Onward Mobility who now own the name.

Blackberry itself now focuses on its network security business. Back when it made phones, part of the brand’s popularity within the business world was its security and privacy expertise. Its Blackberry 10 operating system, powered by its QNX platform, was considered best in class. Unfortunately, the phones themselves didn’t have the bells and whistles of their other competitors to make the most of it, so few got to appreciate it. So Blackberry thought they would stick with what they do best and sell the QNX platform as a commercial operating system. It’s now used in a wide variety of industries including aerospace and defence, automotive, commercial vehicles, heavy machinery, industrial controls, medical, rail, and robotics.

The car industry has been one of Blackberrys biggest customers. As cars become more digitally advanced they need to be reliable and secure. The car manufacturers can’t take any chances that their systems will be hacked or fail on drivers when lives are at stake. In June of this year, Blackberry announced their QNX system could now be found in more than 195 million vehicles worldwide. You’ll find them in BMW’s, Fords, GM, Hondas, Mercedes, Toyotas, Volkswagens, Audis, Hyundais, Land Rovers, and Porsches to name a few. It’s now used in 23 of the top 25 car manufacturers.

Royalty revenue for the QNX system was up 9% year on year to $490 million at the end of the first quarter. The CEO behind the resurgence of Blackberry, John Chen, stated after the result ” BlackBerry continues to clearly demonstrate its leadership position in safety-critical embedded automotive software, with both an increased vehicle count and strong growth in royalty revenue backlog. Achieving over 195 million vehicles marks the sixth consecutive year that this count has increased. We continue to innovate our platform, which further strengthens our market advantage. BlackBerry QNX is very well positioned to capitalize on the secular trends of greater safety-critical software in the car, the transition to electric vehicles and the move towards autonomous drive.”

Its foothold in the automotive industry gives Blackberry a great platform to expand its product offerings. Over the last few years, it has increased its investment in the electric vehicle and autonomous driving technology space and its presence in these areas are going to be a major growth driver in the coming years as vehicles increasingly become “computers on wheels”.

Its latest partnership with Amazon Web Services is such an example. The two have combined to build Blackberry IVY. A highly connected, integrated car system that will collate data from all of the vehicle’s sensors, from its speedometer, GPS direction, cameras, heat sensors, down to the windscreen wipers, and use that data to improve the cars performance and to assist the driver.

Tesla has a similar technology, however, it is a closed system that is only used in Tesla cars. Here Blackberry has learned its lessons from past mistakes and will enable the software to be used by all. Sarah Tatsis, senior vice president of BlackBerry’s Advanced Technology Development Labs states “You can think about Tesla’s platform as a closed platform. But what we’re creating is an open platform, or a platform that can be standardised across OEMs [original equipment manufacturers – i.e. carmakers] and across a mix of models.”

I like where this company is going, I like the value of the intellectual property they have behind them, and I like the new areas of technology they are planning on disrupting. I also like the fact that they are a “meme stock” loved by the stock nerds in the Reddit community. There may be a bit of volatility on the odd day because of it, but unlike the other meme stocks, this company has the potential to build profit going forward and has value in its own right. I would be taking advantage of this volatility and buy on any dips as one to hold for the long term.

Matt and I finally agree. It’s only taken a little over a decade.