Research In Motion Ltd (BBRY)’s Shot in the Smartphone Market

Blackberry systems were often favored by enterprises because of their exemplary security measures, and this has led to their fairly stable pool of loyal subscribers. However, Blackberry recognizes that businesses are increasingly allowing employees to “bring their own devices.” New Blackberries will allow an individual access to either personal or work accounts on a single device with a solid wall between the two.  The company also recognizes that, as individuals, consumers may not require all of the enhanced services. Consequently, in December, the company announced that they will transform their service revenue model. Customers will have choices that depend on their usage requirements. Unfortunately, details on this transformation are scarce. CEO Heins acknowledged that they will not be able to provide insight into this until they “have a clear view on the launch numbers, and the launch plans.” Investors should be aware that much of Blackberry’s current revenue stream comes from services and not from mobile devices. Given the uncertainty about not just the success of Blackberry 10 but also the sustainability of this revenue stream, investors should be cautious.

If the new launch goes well, Blackberry’s price represents a fair value, by some measures, even with the recent volatility in share prices. The Price to Book ratio hovers around one, with cash on hand equal to approximately $4.50 per share. The Price to Free Cash Flow ratio, useful in valuation models, is currently quite low, around 3. While profits have been poor (earnings have recently been so low that the P/E ratio falls well over 300), the company has taken welcome steps to shave over one billion dollars in operating expenses.

Despite my admiration for their product, both the new operating system and their remarkable security features, that uncertainty about their core revenue stream worries me.  I won’t invest now and will wait for more information at the end of March when this quarter’s earnings are reported and more information is available regarding how the new phones are fairing in the marketplace.

The article BBRY’s Shot in the Smartphone Market originally appeared on Fool.com and is written by Elise Ralph.

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