You remember BlackBerry (NYSE: BB), don’t you? Fifteen years ago, the trendy black smartphone was all the rage. If you wanted to be taken seriously as a businessperson on the rise, you had to have a BlackBerry phone in your pocket.
That all changed in 2007 when Apple (NSDQ: AAPL) introduced its iPhone. The iPhone featured apps that a BlackBerry did not have. Within a few years, BlackBerry sales fell as Apple quickly gained market share.
The financial impact on BlackBerry (then known as Research in Motion) was profound. After peaking above $140 in 2008, its share price plummeted below $10 less than five years later. Over the same span, Apple more than tripled in value.
You may be surprised to learn that BlackBerry is still around. In fact, it still makes a smartphone. But that’s not why the company was in the news last week.
On December 1, BB shot above $9 after closing beneath $6 the day before. That day, the company announced that it had signed a deal with the Amazon Web Services (AWS) division of Amazon.com (NSDQ: AMZN).
This transaction has nothing to do with smartphones. Instead, BlackBerry will develop software used in cloud-connected vehicles using Amazon’s cloud services. Suddenly, BlackBerry is cool again!
21 Growth Stocks For 2021
The precise details of the financial arrangement between the two companies were not divulged. Presumably, the terms heavily favor Amazon. Regardless, even a modest amount of income from the Amazon deal could have an outsized impact on BlackBerry’s revenue stream next year.
During its fiscal second-quarter ending August 31, BlackBerry reported total non-GAAP revenue of $266 million. During its most recent quarter, Amazon racked up $96 billion in sales.
Don’t Forget the Phone
BlackBerry has been down in the dumps so long that most people have forgotten about it. The company is headquartered in Canada and has a market cap of less than $5 billion so it doesn’t get much attention on Wall Street.
That makes BlackBerry the perfect “ambush stock” for 2021. Its last set of quarterly results came in better than expected. The company reported non-GAAP (generally accepted accounting principles) earnings per share of 11 cents on a basic/diluted basis.
However, on a GAAP basis, BlackBerry reported a loss of 4 cents per share. For that reason, the trading algorithms that evaluate stocks still view the company as a black hole into which money goes and nothing comes out.
A few days after the Amazon announcement, BB receded back below $8. At that price, the company is valued at roughly seven times annualized non-GAAP earnings. That’s cheap for a stock that just entered into a partnership with the second most valuable publicly traded company in the world.
In fact, all of BlackBerry’s valuation multiples are misleading given how much its operating metrics could improve over the next 12 months. That’s because sales revenue could soar next year. In addition to the deal with Amazon, BlackBerry is launching a new smartphone in 2021.
This new Android phone is specifically designed to maximize the benefits of 5G technologies in the United States and Europe. The phone will be manufactured in India by OnwardMobility, a privately held company that is aggressively pursuing the global 5G market.
India’s national 5G network is expected to be completed in a few years. When that day comes, BlackBerry’s phone will become available to a market of more than one billion consumers.
Set It and Forget It
BlackBerry stock is so cheap that it does not have to appreciate much to make a big profit. If it goes from $8 per share to $10, that’s a gain of 25%. But there may be a better way to leverage BlackBerry’s future share price appreciation.
Last week, while BB was trading near $7.50, the call option expiring in two years at the $7 strike price could be bought for $3. For that trade to be profitable at expiration, BB would have to rise above $10. If it gets to $13, you would double your money.
My guess is BB could be worth far more than that in a couple of years. By then, the income from the Amazon deal should be gushing in. At the same time, India’s 5G market should be on the verge of expanding exponentially.
It’s not often that I advise a “set it and forget it” options trade, but this is one of them. No matter what happens to BlackBerry in 2021, I think it would be a mistake to sell the stock or the option.
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