The article was written by Jacob Saphir, a Financial Analyst at I Know First.

BlackBerry Stock Prediction

“Uber is efficiency with elegance on top. That’s why I buy an iPhone instead of an average cell phone, why I go to a nice restaurant and pay a little bit more. It’s for the experience.” Travis Kalanick

Summary:

BlackBerry was the leader in the smartphone until Apple, Samsung, and Alphabet overtook the market.

Failing to find new innovation and keep up with its competitions.

Declining Fundamental

Forcing to reorganize to become a software and services provider

I Know First’s algorithm indicates a bearish signal for BBRY.

Background:

Blackberry, Ltd. (NASDAQ: BBRY is wireless communication company, most notably known for designing and manufacturing Blackberry smartphones. The company also offers enterprise mobility management, enterprise software solutions, and mobile security software. The company was founded in 1984 and headquartered in Waterloo, Canada. Since 1999, the company became a pioneer in smartphone design and technology. On that year, the company introduced the Blackberry 850. The phone drew attention as a two-way pager with a qwerty board. In 2003, BlackBerry achieved another milestone to release the BlackBerry Quark in 2003. It was the first ever phone to serve as a mobile with the ability to send e-mail, text messaging, and we browsing. The phone became an instant success with business executives due to its numerous functions. The phone was such a phenomenon, some dubbed Blackberry phones as “CrackBerry”. As time passed by, Blackberry introduced features such as small trackball for freewheeling navigation and released the first phone to have color display. The next year, they released the first phone to have a color display. However, Blackberry’s success influenced new major competition in the multi-billion dollar industry. The biggest threat began in 2007, when Steve Jobs released the first iPhone. Alphabet followed later with the release of Android operating system. How could such a pioneer in the industry and once the largest company in Canada in term of market capitalization of $83 billion in 2008 fall from grace? What are the reasons for its stock to decrease over 80% from 2006 to 2016? Its fall and reasons to be bearish of the company are the following: too slow to catch up with competitors, declining fundamentals, and uncertain future.

Too Little, Too Late:

In the volatile technology industry, a company’s innovation and strategy could mean the difference between profit and loss. The introduction of the iPhone and Android phone was a clash in what the future of phone users preferred. A phone featuring touchscreen which differed with BlackBerry’s qwerty board. The iPhone on the utilization of applications. BlackBerry focused its strategy to appease business personals instead of the general public whom favored touchscreen. As the future became apparent that the market would be determined by the general public, BlackBerry released its first touchscreen phone in 2008, but fell short in features supported compared to its rivals. By 2012, the iPhone and Android phones reduced BlackBerry’s market share significantly. With its decreasing market share, unsuccessful operating system to have descent developer support, Blackberry started to use Android operating system in their phone. But it was too little, too late. 20% of the market in cell phones, and at one point the leader in smart phones. Focus was e-mail instead of apps and web browsing.

Declining Fundamental:

How much has BlackBerry fell from grace? Since 2011, the company watched as its revenue continuously fell from $19.91 billion to $2.16 billion. This is approx. a 90% decrease. Such a decrease in revenue would also decrease in operating margin and net income. Operating margin fell from 23.29% in the year 2011 to operating at a loss of 10.32% in its most recent annual statement. Net income fell from $3.14 billion in its peak on 2011 to a net loss of up to $5.87 billion loss in 2014. Since the start of the first quarter for 2016, BlackBerry’s total assets has decreased from $3268 to $2639 in its third quarter. This is nearly a 20% decrease, while its debt to asset have been increasing. The company’s return on equity over the past 5 years from 41.42% to -6.27%. With these worrisome statistics along with company’s long-term debt surpassing its cash in hands, some speculate the company’s sustainability in the future. The situation has become so dire, what made the company famous is now forced to leave the industry.

Switching From Internal Hardware To Software:

Finding its market share continuously decreasing, the company looked for a new strategy. On September 28, 2016, CEO John Chen announced the company would discontinue developing phones. The company is outsourcing the business line that shaped the company to be a pioneer in the smart phone industry. Instead of phone development, the new company’s new strategy is to focus on its other business lines in becoming a security and software development provider. The reorganization is expected to be complete by February 28, 2017. Although this move is welcomed by many in its effort to consolidate and adapt, can Blackberry continue to rely on this business line segment? I Know First’s financial analyst, Nama Shukla, wrote on August 22, 2016, reasons to be optimistic in Blackberry’s potential in increasing software and service revenue. However, he did share his reserves that software sales only accounted for 39% of the company’s overall revenue. Forgoing phone development could affect the company’s future cash flows. Despite BlackBerry reaching an agreement on October 31, 2016, to supply all Ford vehicles “Sync 3” infotainment system with Blackberry’s “QNX” operating systems. Although this sounds encouraging, all Ford vehicles will still offer Apple’s CarPlay and Alphabet’s Android Auto. This puts BlackBerry in competition with these two powerhouses. Ford’s goal is to use Blackberry’s knowledge into releasing a fully autonomous car for sale. However, the first car is not scheduled to be released until 2025.

Conclusion:

We are maintaining a bearish forecast of the stock. I Know First’s algorithm forecast the stock not as a long-term investment.

Past I Know First Forecast Successes With BBRY:

In such as the one dated on March 16, 2015 the algorithm accurately forecast a bearish signal for BlackBerry. In a 3 months time span, the stock decreased 5.61%.

Below is the latest forecast I Know First algorithm released on November 1, 2016. If we were to compare the forecast back in March 16, 2015, we can see both forecasts rate BlackBerry Ltd. as a sell. If the previous forecast accurately predicted the stock would decrease and it did by 5.61%, the latest forecast below could indicate further decrease in the stock’s value.

The forecast is color-coded, where green indicates a bullish signal while red indicates a bearish signal. Brighter greens signify that the algorithm is very bullish as it does at the top of this forecast. The signal is the number flush right in the middle of the box and the predicted direction (not a specific number or target price) for that asset, while the predictability is the historical correlation between the prediction and the actual market movements. Thus, the signal represents the forecasted strength of the prediction, while the predictability represents the level of confidence.