BlackBerry's Facebook Fantasy
Facebook's FB +2.28% $19 billion move on WhatsApp clouds the picture for BlackBerry BBRY +4.77% investors trying to value that company's own messaging service—as well as its latest turnaround effort.
BlackBerry's shares bounced Thursday on the Facebook news. The surprise acquisition valued mobile-messaging provider WhatsApp's 450 million users at about $42 each. That same math applied to the 80 million users of BlackBerry Messenger, or BBM, implies a value of about $3.36 billion, equal to about 70% of BlackBerry's total market value.
Yet even bullish Facebook analysts are puzzled by the deal's implied value. Facebook won't be wrapping WhatsApp's huge customer base into its own lucrative advertising platform. And for all the hoopla around WhatsApp, the key question of what a mobile-messaging customer is actually worth remains unanswered, and frothy valuations of Silicon Valley startups may not be the best place to start.
Moreover, BBM remains closely tied to BlackBerry's rapidly shrinking handset business. The company said in late December that about 40 million iOS and Android users registered the application in the 60 days following its launch for those platforms. But it remains unknown how their usage compares with those on the BlackBerry platform.
WhatsApp's value lies in its large customer base straddling all major mobile platforms—with 70% of its user base active each day. BlackBerry still needs to show it can keep users engaged outside its home platform base and monetize the service.
BlackBerry is currently working to build up BBM as a messaging app focused on corporate and government customers. While chief John Chen said on the most recent earnings call that BlackBerry wouldn't rule out advertising for BBM, he believes revenue will come from monthly user fees.
It will take time to see if BBM can make that stick on its new platforms. And that strategy is in contrast to those of other mobile-messaging apps.
So putting a value on BBM at anything near that implied by the Facebook deal looks far-fetched. Absent that, BlackBerry investors are still left with the riddle of how to value the company's prospects as a provider of enterprise-class mobile software, given it is working to spin off the money-losing hardware business to Foxconn. 2354.TW -0.15%
There is no easy answer. Although the shares have risen more than 50% since the last earnings report, debate has centered on assumptions around the value of pieces such as service revenues, patents and potential gains from selling Canadian real estate holdings.
In this light, BBM remains an interesting option on BlackBerry's turnaround. Just don't confuse its message for the stock's main story.