[mrfreeze]

This is a good read. Seems like SA is becoming more and more favorable to BB. I think if BB can add some more features and sell the security bit they could increase their user base fast.

Source: Seeking Alpha
Link: BlackBerry Ltd (BBRY) news: Being Bold Matters - BBM Is Worth More Than $5 Billion - Seeking Alpha

Being Bold Matters - BBM Is Worth More Than $5 Billion

Summary

• BlackBerry Messenger is on track to grow its user base to over 100M by the end of the year.
• BBM has a unique opportunity with its channels and security to provide a unique experience to its users and shareholders.
• BBM has the potential to monetize in several ways, and is superior to its competitors because of its ability to target its users.
• Recent acquisitions and valuations show that messaging applications are used heavily by consumers and draw a lot of interest from investors.
• BBM's $5B conservative evaluation is more than BlackBerry's entire market cap, and could cause its shares to rise three fold.
• One of the most polarizing companies on the market is sitting on a service that can link hundreds of millions of people. There has not been a transformation like the one we are seeing today in BlackBerry (BBRY) for many years. Transforming from a hardware to a software company creates many skeptics and shorts, but if the move proves to be successful it can reward shareholders generously.

The most intriguing product of BlackBerry is its messaging service, BlackBerry Messenger (BBM). It's a confusing business, with an undetermined monetization plan, and often leaves analysts perplexed. The recent transaction of WhatsApp, which was purchased by Facebook (FB), gave BlackBerry supporters a reason to continue with their message of the competitiveness of the company. With a $19B price tage, which valued its users at $45 a piece, WhatsApp perhaps demonstrated Facebook's realization and need of an instant messaging software.

It just so happens that BlackBerry is sitting on a "superior" application, which if valued at $42 a user would be worth approximately $3.6B. With BlackBerry's current market capitalization of $3.7B, this would mean investors are valuing the company's QNX, BES, hardware, patent, and asset portfolios at just over $100M.

Facebook's acquisition of WhatsApp can not be used as a benchmark for the valuations of instant messaging companies, though it can be used to show the significant interest that social media has in this phenomena.

BBM is best compared to the recent acquisition of Viber by Rakuten for $900M. With slightly more monthly active users than BBM, Viber valued its 105M MAU's at $8.57 each. Using this valuation, BBM would be worth around $730M.

While this is a surprising valuation, which is overlooked by many analysts, it still only compares apples to oranges. Viber works with both mobile and desktop devices (increasing its user base) and provides services though users existent WIFI or data plans. It behaves as a replacement to a data plan (if used with WIFI), allowing users to call, text, and share locations and photographs.

In fact, Viber acts as a cell phone, syncing with existing contacts and using ones cellphone number as their username. It is similar to MagicJack's (CALL) APP, allowing users cheap overseas communication. The $8.57 per MAU means that Rakuten believes it can monetize the service, but a communication application is not worth as much as a messaging service. The company has specified that its current Viber product will always be free, but it plans on generating future revenue through premium services.

This is inferior to BBM. BBM's strength is further highlighted in its comparison to WhatsApp. WhatsApp offers group chats to its users, allowing them to share their locations and attachments. It is similar in theory to Viber, but boasts 450M "users", more than twice the users of Viber and BBM combined.

WhatsApp deserves a premium over Viber because of its "messaging" over "calling" basis, but how does this compare to BBM? The other main messaging services are LINE, WeChat, Kik, and KakaoTalk, which all share the same basic services: calling, texting, location sharing/maps, shops (including stickers), photograph sharing, video/camera, coupons (LINE), built in browser (Kik), Videocalling and VoiceChat (WeChat), and music (KakaoTalk).

BBM has all of these features except the built in browser and coupons. However, since BBM never closes, it is easy to switch into ones browser and other apps. Looking at each service's products and features, WhatsApp is trailing in the pack in terms of features but leads in users. The hardest part of the messaging companies is not creating products, but instead getting its users -- this is why FaceBook gave such a large premium to WhatsApp.

BBM

BBM is best positioned for a niche market (sounds familiar to its hardware business), but it doesn't make it invaluable. The company currently boasts 85M MAU's, and I project upwards of 100M MAU's by the end of 2014. This increase will be caused by its preloading onto LG devices, its expansion to the Nokia X (NOK) and Windows (MSFT) devices as well as its natural growth (and a possible desktop expansion).

BBM offers the same messaging basis, with both voice and video communications. BBM also provides the basic group chats, shop, location services, and sharing as its competitors (and also allows screen sharing unlike its competitors), but keeps key advantages in two areas: BBM Channels, and security.

While BBM has not created a set monetization plan, it appears as if they will focus on targeted advertisements and sponsored channels since the recent announcement of its monetization. One of the abilities of BBM with its channels is to target them towards consumers who view related content ("direct, relevant, friendly").

Targeting and Costs



Source: The data table above comes from a series of email marketing campains (List A, List B, etc.):

As seen from the data, the aggregate conversion rate is approximately .11% for email marketing campaigns leading to a $7 per conversion cost. Social media advertisements are harder to track, but based on the data below, it costs approximately $.002 per impression.



Source: Mark Cuban's Tweet and Screenshot (found here)

However, email marketing generates more than three times the conversion rate of social media. This is mainly caused by the ability of email marketers to target and personalize their audiences, as seen by targeted emails generating 8 times more revenue than general emails.

BBM Monetization

There is still a lot to be decided in the monetization BBM, but what is certain is the marketability of its channels.

Facebook's CPM (cost per thousand impressions) of $2 is only a fraction of BBM's potential fee. BBM would be closer to targeted email's $7.90 CPM due to its channels. The channels will allow BlackBerry to target advertisements towards consumers, perhaps increasing the conversion rate far above .11%.

BBM users view (based on FY2014 Q4) nearly 1B pages a day, showing the productivity and success of the application in its early stages. The development and usage of channels is a large influence on BBM's current and future success.



Source: BlackBerry Messenger's website homepage

The home screen is where it would make the most sense to display sponsored channels. Looking at the current application, the home screen displays upwards of a dozen channels (and more if a user scrolls down), from both friends and companies.

Using a 'worst case scenario' where a user only views their home screen when the application is opened, it would be safe to currently assume 85M home screen views a day.

The variables unknown will be the CPM that will attract advertisers to BBM, and how many sponsored channels BBM will display on the home screen (projected annual revenue in millions):

Sponsored Channels (home screen): 1 chls 2 chls 4 chls 6 chls 8 chls
$2 CPM $62.05 $124.1 $248.2 $372.3 $496.4
$4 CPM $124.1 $248.2 $496.4 $744.6 $992.8
$6 CPM $186.15 $372.3 $744.6 $1116.9 $1489.2
$8 CPM $248.2 $496.4 $992.8 $1498.2 $1985.6

Based on just one home screen visit a day by just 85M users, viewing (not clicking on) four targeted channels, BBM would generate more than $744M a year in revenue. Used in the calculations was a $6 CPM, which is very low for comparative advertising methods.



Source: 2013 CPM rates were found on SiteAdWiki

Targeted emails and sponsored sites are the best comparisons for BBM's ability to collect data on its users, but BBM's potential $6 CPM is closer to a broad advertisement on a billboard. The potential for BBM if users visited their home page just twice, CPM increased to over $6, or if more users join is huge.

While $744M is my estimated revenue if BBM were to be monetized in the present day, using my year end calculations (100M users, two home page visits, $10 CPM [this is in the low end of premium mobile impressions]) BBM will generate upwards of $2B in annual revenue from sponsored channels.

Alternatives

There are a lot of moving parts in my model for BBM's revenue in a sponsored channel model. BBM has the potential to expand to an 'invite' advertisement model, where companies can send targeted messages to users' inboxes, and a 'relevant post' advertisement model, where companies could post on users' channels.

Both of these models can be used at the same time as BBM's special channel model, increasing their potential to far beyond $2B a year.

The other main advantage of BBM is its security, which will not only allow users to feel secure but also allow BBM to target businesses and governments (which it is beginning to do with eBBM suites). Imagine the US government setting up channels for each of its departments, secure and safe, and allowing their employees to interact and post relevant information (maps, photographs, documents, other channels, etc.).

For businesses and governments, BBM can link users to their employer's channel, and show the channels of their fellow employees, competitors, and customers. While BBM could charge for this service, it would make most sense to keep the service free for the time being (to grow its user base).

While BBM's model is similar to those of Facebook, Twitter (TWTR), and Google+ (GOOG), in my projections I am not using even close to the same number of users. BBM is in a special place, where it has the ability to become a profitable and major player in the mobile messaging market.

Company Price/Sales Price/User
FaceBook 19 $130
Twitter 38 $108
WeChat 28 $95
WhatsApp 42 $45

Another example is Line, which is valued at up to $15B, or $40 a user, but its monetization model is not as sophisticated as the potential of BBM's (which will not just sell stickers and games).

Because of BBM's security, the application will not just attract consumers, but also businesses and will allow it to offer more services (including possibly accepting payments). BBM's possibilities with its channels and their monetization, as well as its mix of users (including professionals and businesses) will allow it to fetch a generous price/user valuation (upwards of $5B).

A $5B evaluation values BBM at just $50/user by the end of this year, as well as just 2.5x potential sales (with a lot of upside).

BBM has the potential to grow into a major player through multiple operating systems and a possible desktop expansion. It has the features of a messaging service, with added channels and security bringing it far above its competitors in terms of features, possible uses, and ability to monetize -- it is truly superior.

Impact on BlackBerry Stock

BlackBerry as a company is already improving its margins and heading towards profitability by the end of this year. The profitability should lock in BlackBerry's balance sheet, allowing investors to base their price targets on stable assets.

According to BlackBerry's Q4 earnings, BlackBerry has $6.13B in current assets (not including intellectual property), including property, plant, and equipment. BlackBerry has $3.93B in liabilities, leaving net assets (or a shareholder's equity) of $2.2B. This does not include BlackBerry's patents, which have been valued at $800M to $3B.

It would be safe to assume a shareholder equity of $3.2B, plus the potential "values" of its other segments. If the hardware segment is valued at break even (though there is some potential for profits), and the service/MDM business and QNX at around $1.7B (very low on the spectrum of analyst estimates), then BlackBerry could be worth $4.9 without BBM.

With the addition of BBM, which could be worth more than the rest of BlackBerry combined, BlackBerry could be worth upwards of $10B (and trade at a premium to that because of its improvements and potential).

BlackBerry has to take a bold move and grow its user base, and then monetize BBM into a multi-billion dollar business. There is a lot of upside to BBM's $5B valuation, and its BlackBerry's chance to build their messaging service into the showcase of their company. This message has to be delivered to both shareholders of BlackBerry and its competitors, and show that BlackBerry still has a battery left in its products.

[Troy Tiscareno]

Keep in mind that Seeking Alpha is a website where just about anyone can post an "editorial", and that most articles are obviously slanted one way or the other. This is a highly pro-BB(M)-slanted article that doesn't necessarily reflect reality. A few people saw WhatsApp's price and are using it to make assumptions that are no where near valid for other platforms.

A big one is the "network effect", where the value of a platform grows at the SQUARE of the userbase, rather than in a linear way. That means a company with 500M users is going to be worth hundreds of times what a company with 100M users is worth.

Another piece of the valuation is WHERE those customers are located. With the majority of BBM users being located in emerging markets, where spending power is very limited, the value of those customers to advertisers is less than if the majority of users were in developed markets.

Finally, if BBM was worth this much, then it's almost certain that BB would have been purchased 6 months ago when they were looking for a buyer. Prospective buyers certainly knew about XBBM and any projections that BB was making at the time, and that wasn't enough to sway them.

So, while BBM definitely IS an asset, and has potential, I don't think anyone (besides this writer) believes that it will worth $5B anytime soon, if ever.

[FSeverino]

So, while BBM definitely IS an asset, and has potential, I don't think anyone (besides this writer) believes that it will worth $5B anytime soon, if ever.

I would strongly disagree that BBM is not worth anything. BBM can easily hit a 5b mark if they show a revenue on stickers and make any sort of money on channels.

It us secure, reliable and efficent

Posted via CB10

[Troy Tiscareno]

I didn't say it wasn't worth "anything" - of course it's worth something. But "something" is not automatically equal to $5B, and while $2 sticker packs WILL generate some easy revenue (and is thus a smart move), even if every user of BBM on a modern platform (roughly 25M users) bought all 5 sticker packs, that would be a total revenue of $250M, which isn't anywhere close to $5B. And it's more realistic to assume that perhaps 10% will buy a single sticker pack, with very tiny percentages buying more than one.

IMO, BBM would either need to show significant revenue from Channels, or they'd need at least 350M active monthly users to be worth $5B.

[richardat]

Keep in mind that Seeking Alpha is a website where just about anyone can post an "editorial", and that most articles are obviously slanted one way or the other. This is a highly pro-BB(M)-slanted article that doesn't necessarily reflect reality. A few people saw WhatsApp's price and are using it to make assumptions that are no where near valid for other platforms.
r.

You STILL see this here even after all this time. Just saw a post yesterday saying SA was usually biased....(if ever there were a time for facepalming).

SA is absolute, utter, garbage - completely worthless - that should be one of the few forum rules on content - NO SA. lol It's no better than quoting people from other forums.

I think the window has closed on BBM....the real window was a few years ago...perhaps with texting 2.0...or even BBM as it was. They might have had a slim chance when they did launch, if they did it right - they didn't. It's a no-go at this point. I believe they will likely start losing numbers soon.- already are, relative to the competition.

[Dunt Dunt Dunt]

Sorry but this "guest" writer thinks BBM could generate $2 billion by years end.... potentially?

I bet that by years end they aren't even covering cost for operation and development of BBM.

BlackBerry is being very quiet about BBM and it's growth. A company facing the issues BlackBerry is, is not going to hide any shining stars. How many active daily users are there? Where are the located? What platform are they on? How often do the use Channels and how many are subscribed to a Channel?

I'm a BBM user.... have one contact, send maybe 10 messages a month and have bought no sticker and neither has my one contact. Have zero use for Channels, most of the content for the couple of business I did check out are the same as Facebook, but less often and delayed.

If you are an investor, wait and see if there is growth in the Services portion of the next few Quarterly Reports. That $2 billion is not going to show up all at once.... if ever

Posted via CB10

[ADGrant]

So BB is going to be saved by BBM in app ads. This seems a little unrealistic. I personally don't know anyone using BBM so it's no use to me and I therefore don't use it. My employer blocks it from being used on their corporate BBs so no joy there.

This article doesn't address BB's big problem, BB10 has no traction in either the consumer or business market. Consumers are buying cheap Android devices. BB7 is being replaced by those same devices in emerging markets and by BYOD in corporate markets. My own employer just took back my 9900 and gave me a Good CAL for my iOS device.

[lnichols]

It's only worth that if someone is willing to buy it at that price.

Posted via CB10

[sati01]

This is too optimistic, BBM is quite dead in most parts of the world, specially in developed markets, but they are winning in a huge market like Indonesia and have a chance in another big market like Nigeria.
If they establish a domination in those two markets and those economies grow at a decent pace, maybe BBM could get to close to 5 billion in the long run.
But IMO BlackBerry will sell BBM in a couple of billions in the next 2 years to a bigger player, but if they lose the dominant position in Indonesia they will sell it for just a few hundreds millions.
The network effect will crush the secondary players as the market matures, one app will dominate in each country, many apps will fight for the secondary positions making it impossible to construct a decent business.