I have been a BlackBerry Ltd. shareholder for about 14 years. During most of those years, it was a growth company. But for the last few years, it certainly did not meet my criteria of a growth company, and I've discussed in prior Strategy Lab columns why I did not include the stock in my model growth portfolio. The short version is that revenue, earnings or cash-flow growth seemed too far off in the distance while the company was busy attempting a turnaround. For Strategy Lab, I've been sticking to stocks where I felt growth was more certain.
Last week, BlackBerry held an investor conference that was widely attended by sell-side analysts. It has been 3 1/2 years since they've held such an event. After watching their presentation and thinking about the new products they've unveiled, I feel the company could be on the verge of returning to substantial growth. But this time around, the growth isn't expected to come from device sales. Instead, it seems that BlackBerry, under the leadership of CEO John Chen, could be emerging as a high-growth, enterprise software company.
Almost since its inception, BlackBerry earned most of its revenue from handset sales. The company was dominant in the smartphone industry from the start, and most people are familiar with how the iPhone shocked the industry, causing the one-time leader to immediately play defence.
But during this time BlackBerry also became complacent with its software, the BlackBerry Enterprise Server (BES). Mr. Chen's focus has been to rebuild the competitive positioning of BlackBerry in the enterprise market. The company still has a huge lead over the competition in terms of the installed base of customers, and I think it just might be able to return to growth by selling software licences that bring in recurring revenue.
Last week the company formally launched BES 12, an updated enterprise server that allows IT departments to manage iPhones, Androids and both legacy and new BlackBerry 10 smartphones. According to Strategy Analytics, there are more than 600 million mobile phones used for business around the world. The vast majority of these phones are not connected to any formal mobility management solution such the BES 12 sold by BlackBerry. Mr. Chen has shifted BlackBerry away from its old model of selling software licences for a one-time fee. They now sell BES licences so that every connected mobile device brings in recurring revenue.
If BlackBerry is successful in becoming the dominant provider of enterprise mobility management services, it stands to generate much more software and service revenue than it ever has in the past. There are far more iPhones and Android devices than there are BlackBerry smartphones in the business world, and BlackBerry can now sell a single solution to help IT departments manage their whole fleet of mobile phones and tablets.
I also see enormous opportunity for BlackBerry to generate even more recurring revenue from several new value-added services that it recently launched. For example, BBM meetings is a new service that will compete with WebEx, a market leader in the old world of desktop-based Internet meetings. BlackBerry also announced a secure way to connect enterprise users to their corporate virtual private networks (VPNs), dispensing with the old, inconvenient and expensive method of using a RSA SecurID key fob (sold by Citrix Systems). These and other new services should contribute to significant revenue growth starting right now.
As a long-term investor I see how, over the next several years with solid execution, BlackBerry could grow to $10-billion in annual software and service. That kind of growth could easily support a stock price four times higher than today's prices. To accomplish this, BlackBerry would not only need to sell a lot of software to a lot of customers, but it would have to beat out a lot competitors in the process. I'm not ready to declare that this will absolutely happen, but the chances the company faces are much better now that the management team has been almost entirely replaced with people who have vast experience in enterprise software sales.
BlackBerry's revenue will probably still shrink this coming fiscal year because fees that it used to collect from wireless operators are declining. But on the software side of the business, I believe it is accurate to say the company is already growing again. Sooner rather than later, you might see me add BlackBerry to my Strategy Lab growth portfolio as the leader in enterprise mobility management software.