BlackBerry Ltd (TSX:BB)(NYSE:BB) is a company with a fascinating history. Founded as Research in Motion in 1984, it had a massive hit in the mid-2000s with its BlackBerry smartphone. The first product of its kind to really go mainstream, the BlackBerry once held a 42% market share in the global smartphone industry.
For a few years after Apple’s iPhone was released, Blackberry continued to maintain its market leading position in smartphones. Eventually, though, the iPhone took the lead, with Blackberry quickly falling into second place. After the rise of Android smartphones, which collectively came to represent a larger share of the market than the iPhone itself, RIM’s market share shrunk to a truly negligible 0.048%.
For a long time, investors were optimistic about the possibility of the BlackBerry smartphone making a comeback. However, management decided to move on to other pastures, re-branding as a vendor of highly secure enterprise software. To their credit, this move was probably the right one, since the global smartphone industry is extremely competitive and BlackBerry’s brand recognition in the space had completely evaporated.
However, I remain skeptical that BlackBerry can hack it as an enterprise software company, for three main reasons.
Declining sales
BlackBerry’s long-term sales trend is pretty bleak, even in the period after the company pivoted to software.
Digging into the company’s most recent annual report, we see $904 million in sales for fiscal 2019, $932 million in sales for 2018, and $1.3 billion for 2017. Although the company’s most recent quarter saw sales grow from $210 million to $244 million, the annual picture is far uglier. Additionally, in that same quarter where revenue came in at $244 million, earnings were $-44 million, down from a $43 million profit in the same quarter a year before.
High competition
In many ways, BlackBerry faces the same problem in software that it did in hardware: a highly competitive market where it’s difficult to stand out.
Taking a quick look at BlackBerry’s software offerings, we see items like email, calendars, browsers, instant messaging, and cloud-based collaboration. In all of these product categories, the company is facing stiff competition from market leaders like Alphabet, Microsoft, and Slack. Granted, BlackBerry does have a point of differentiation. It bills itself as being a more ‘secure’ enterprise software solution, and that may be a decent selling point in light of Facebook’s many privacy scandals.
However, larger enterprise software companies are investing heavily in security, and as their investments in this area bear fruit, it will become harder for BlackBerry to differentiate itself.
A glimmer of hope
If all seems lost for BlackBerry, it’s important to keep in mind that the company is releasing some good news.
Recently, it inked a deal with Canadian Pacific Railway to provide IOT monitoring solutions for the company’s rail cars and equipment. That’s a fairly major deal that should drive new revenue for BB. However, it’s just one deal, and certainly not a sign that BlackBerry will become a leading software provider for the rail industry. Although BlackBerry’s revenue is smaller than it used to be, it’s still near $1 billion annually, and the company will need more than just one headline-making contract to offset declining revenue in other areas of the business.
