What I think about the very bullish Citron report on BlackBerry

Contemplating Wall Street
By Chris Umiastowski on 20 Jan 2014 03:39 pm EST

This morning I had a chance to sit down with a hot cup (ok, several cups) of coffee and read the recently-published and very bullish report on BlackBerry by Citron Research.  I have a feeling most of you haven’t ever heard of Citron before, but neither had I. That said, I’ve become a big fan of them.

Who is Citron? If you read most of the stories that reference their BlackBerry report from Friday and today, you’d think they were a huge firm. Instead, they’re just private investors who publish really interesting and well-researched reports. They write reports that I wish Wall Street had the nuts to write. The main man behind the brand is Andrew Left. I’m not sure if it’s a one man shop or if he hires research help, but it’s clear from the website that Left is in charge of publishing stuff and he is a private investor not a Wall Street research firm. All of his reports are freely available.

As you might have guessed from the name, “Citron” (French for lemon) tends to focus on what it feels are broken, fraudulent or overvalued businesses. In other words, they write about stocks that they think are lemons. Occasionally they write about stocks that are no longer lemons as was the case with their BlackBerry report last Friday.

It’s worth reading the 12-page report that Mr. Left published. He makes a very strong case for the strength of BlackBerry’s balance sheet and the transformation of the business towards enterprise software and services. Importantly, he spends ample time discussing John Chen and the new management team members that have come in under Chen’s leadership. He points out that BlackBerry’s mobile device management solution is earning much better feedback (in the Google Play store) versus the competition, and he spends ample time ripping other analysts to shreds.

I’ve covered BlackBerry since 2000, so I know the stock’s history better than most observers. In the early days it was covered by Canadian analysts and very few US analysts on Wall Street. When the US analysts moved in it was always the same. BlackBerry was considered a part of the “communications equipment” sector. The US analysts covering BlackBerry were the same guys covering Nokia, Motorola, and other wireless hardware makers. That made sense at the time, but it doesn’t make sense anymore. This is why Citron’s Mr. Left thinks analysts have the story all wrong today.

It’s hard to argue with his logic. I agree with him. The Canadian analyst crowd (those who have covered the stock long enough) have a bit of an advantage because BlackBerry was always a bit of a special situation. Canadian analysts were often earlier to the story (it’s in our backyard) and didn’t cover the other wireless handset makers, so they had more time to dedicate to learning about the intricacies of BlackBerry. With the enormous growth that BlackBerry saw over the last decade, it’s no surprise that everyone has been trained to focus intently on hardware sales. Given the shift of focus to enterprise mobile management, we need to push the reset button on how we evaluate the stock.

It’s pretty obvious to me that BlackBerry is either going to be successful in transitioning to an enterprise play or it’s heading towards complete destruction with essentially zero value

Speaking of pushing the reset button, I think the change of management in the enterprise division of BlackBerry is really important. I’ve been critical of the folks in charge of BES over the past few years. It really felt like BlackBerry wasn’t spending enough energy improving BES. That’s why I’m so happy having seen John Chen take near-immediate action to install new leadership there. It was time for change long ago.  If it were not for these management changes I don’t think I could sit here and write an article that has a more upbeat tone to it. Instead I’d just worry that they’re now entirely focused on an area that’s still being run poorly. In other words, Chen hit the reset button on the management team that is responsible for the future of the company (enterprise software and services).

As a final thought for now, I think a lot of analysts on BlackBerry are being chickens with target prices that aren’t far away from where the stock was trading at the time they published their targets. It’s pretty obvious to me that BlackBerry is either going to be successful in transitioning to an enterprise play or it’s heading towards complete destruction with essentially zero value. I’d definitely prefer the former scenario since I still hold shares (I’ve never sold, for those wondering).

So if I’m right in saying we have a fairly binary outcome, then when the stock was trading at $6 (last month) anything in the $4-10 target price range is pretty gutless.  I’d like to see more analysts make bold calls. For example, Citi had a $4 target price based on what sounds like a complete failure of the business and a sum of the parts valuation.  Here’s the thing:  No tech company is ever worth it’s cash + other assets. As long as the board of directors doesn’t shut down the business (does that ever happen?), they go for broke. I think analysts who really want to make a call on the stock should either say it’s worth nothing (yeah, $0 target price) or they should be saying the business will recover as an profitable enterprise play. 

Maybe this should be the topic of a separate article, but the short version is this: I think a successful BlackBerry in the enterprise (stabilized revenue, profitable, software focus) is worth $20 per share or more.  Zero or $20 … or something like that. Any other call equates to a non-bet.

Topics: BBRY Editorial

Reader comments

What I think about the very bullish Citron report on BlackBerry


Very interesting read, and I will have to read that 12 page report. I'm also calling for about an $11.20 call for stock eventually

Just had a thought Chris,If you had written such a great paper like the one Citronresearch wrote ,you'd be famous,on the street,Everybody is taking notice.

OK not interested fame but I'm sure you would have a much better report out instead of all those analysts or some that just write but have no idea what's really going on

Never sold your shares huh? That's actually comforting to know. After your Vector podcast with René a few months back, I recall you referring to the stock for Apple and Google and stating, "that's where my money is. "

I'm assuming that's where the majority of your $ is rather than BBRY stock, but at the time I kinda just assumed that you no longer were a shareholder of BBRY. I know you won't recccomend in a comment that someone buys, or sells stock in BBRY right now, but I've been considering buying in the near future, and the fact that you are still holding yours is comforting.

Posted from my CB10 via the power of "Q"

Umi.... Citron was "nice", but even more important is the story out of the Department of Defense.

First, it demonstrates that there really is no alternative to BlackBerry for security.

Second, it demonstrates the deceit of the "Apple Hype Media Machine" when, last May, Bloomberg came out with report about is and Samsung Knox getting certified and stealing BlackBerry market share in the Department of Defense.

Lies....and irresponsible.

BGR and other "Apple Trash Sites" ran with that story like it was gospel.

Angela Merkel, the Blonde Gal Obama took the "selfie" with, Obama and a other World Leaders all Rock BlackBerrys....

Big "vote of confidence"...

CB10 from the Z30

DOD,Huge!!!Sends a signal that BB is not going out of business.Now we'll see some other Corps who doubted BB would be around ,come around.

Well BYOD is not that great. If you bring your iphone for example, I am sure they will lock it down leaving you a personal device that isn't so personal except for the bill and will have limited apps. Ask anyone who has a locked down BYOD. Now if you have a BlackBerry with Balance, then you have something! This is what the general public has not seen yet. My brother in law was just handed a company iphone. He says he has less than 30 apps available and they are mostly travel related. They also put tracking software on it so hey they know where he is 24/7. Now true it's the company's phone so they have every right. However, would you supply your own device? The DOD will lock it down so BYOD will be extremely small if non existent.

Posted via CB10

I agree, I have my personal Z10 on our work BES10 and having blackberry balance has been nothing short of awesome!

While others profiles pushed from the server are completely looked down because they have an iPhone or even an older BBOS device. I simply swipe from the top, switch to my personal side and BOO-YAH! Zero restriction on my apps. I can even get my work email on my personal side if I type in my password, it's just that awesome.

Posted via CB10

I never know who you are "quoting" Freddie. LOL. Yeah I agree the DOD news is great although not the topic of this article.

Posted via the Android CrackBerry App!

I have to say it ,Citron is old news,the DOD is what's driving the stock today,I don't think I wanna hear about 3 day old news because you found the time to have a coffee and comment on it .Chris ,just saying,lol

it takes stones to put your thoughts on paper and show the world, I respect anyone who has an honest perspective to share... kudos Chris! (and thanks for distilling some of the nonsense)

Ya think he would have learned from wired but it will take some time I guess for people to warm up to BlackBerry and the awesome Z30!

Posted via CB10

DOD vote of confidence!

With talk of some leaving their mobiles at home - one would think Sochi would be a great place to use a BlackBerry.

Maybe some of those BlackBerry elephant leg commercials could play out and let privacy be the highlight at the 2014 Olympics!

Posted via CB with the Zthirty STA100-5/

Either they fly or crash and burn. Chrysler is the only organization off the top of my head that still plods along as a going concern (albeit now as a Fiat subsidiary?) that can't ever seem to totally fail or thrive.

Only reason they didn't totally fail last time was because of govt bail outs and being sold to Fiat. In my eyes they failed huge. Now Chrysler in the 80's...that's a different story.

...we are all connected...

The Citron report was indeed very well researched. The story line on BBRY is changing now that many of the most aggressive shorts have exited their positions, or even gone long, as we see here. In addition, we just saw the share price blow past the $9 bid, and is now trading at the price of the convertible. That means the newly acquired debt on the balance sheet is also about to go 'poof'.

Any thought on whether this will give them a chance to issue a new convertible at the same or greater size, but with a slightly higher price point? It might give the original investors (and more?) a chance to cash out on their original investment with a very nice profit and roll right back in again....


Thanks Chris.
My half "no bet" is in the $12-16 Billion Book value fair valuation. Name it a target #1.
Then, anything can happen, and my bullish view on the long haul is way over $20/share.
Want a number ? That's a party one (private joke for the gang) !

Today, or three years from now?

As no one was a buyer during the recent "open house", I'd say the value has gone down to below the Fairfax offer. Right now you have a LOT of speculation going that is driving the price up, and it is based on nothing but a change in leadership and a belief that they can't fail this soon after being #1. The same happened after TH came on board, there was an increase of about $5 a share for a while... but with no results the honeymoon didn't last.

In speaking to a friend who works at BlackBerry the mood has improved significantly as has the culture since John Chen arrived. People are being held accountable and the focus on regulated sector is very much spelled out and projects or initiatives that stray too far away are being shut down / not allowed to proceed.

BlackBerry knows that they want to do and are working on doing it. Whether it is right or wrong we will find out!

Posted via CB10

"at BlackBerry the mood has improved significantly"

Despite the fact 2000 people are still to lose their jobs?

Really interesting article Chris - I downloaded this report, but haven't gotten round to reading it yet, so this has helped both to summarise the report and inspire me to read it in full!
I've only been #TeamBlackBerry for about 3 years (got an 8520 back in '11), but I'm quite a strong supporter of BlackBerry - to the point where I'm now actually tempted to buy some BBRY shares (I currently don't own shares at all) - and I guess it'd be better to buy now while the price is good :)

Here's to BlackBerry's continued success!!

I read a lot of ONE, TWO, one, two in your post in the f... ahem, top spot up there.

Well played, sir...

My name is Prem, I'm using BBM ... from my QuZe10 ...whatarhyme...

Mr Umiastowski, you have called it.

They need to up the enterprise customer base.

The Department of Defence news is a good start of the battle but this won't win the war.

Posted via CB10

good article Chris - lets say $0-$20 at current state but your original potential target in Nov. 2012 if all stars aligned at $40/ share

Give it time. Perception is changing, but it needs time.

BlackBerry needs to build on existing assets, like BBM, BES / MDM, QNX and handset business in the high-end / luxury and budget markets (developing countries), and return these to profitability. It certainly seems easier to sell 10,000 phones + CALs to a corporate customer, that fight with lack of carrier support in the consumer space and sell a handful at a local store. Corporate profits can then be used to target the mass market again.

BBRY will return to the consumer, once the OS has matured and the relationship with carriers has been improved.

The iPhone hype must come to an end.
I can see it here, a lot of my small business customers (tropical north of Australia) are bored, and are looking for something new, but BBRY is sadly not there (yet!) to show them what their are looking for, I mean a marketing campaign targeting pro- / consumers is not happening yet.

My name is Prem, I'm using BBM ... from my QuZe10 ...whatarhyme...

They took the phones out of Costco I noticed ,where do you think they are going,enterprise is where it's at right now,instead of having the phones collecting dust, they are being ready to get shipped to industry.They can't afford to beat a dying horse and are trimming the fat, they have the inventory and don't want to get stuck with it, if it won't move.It kills me not to see BB phones on display but I know they will be going somewhere.Citron has it right.

I wonder if Mr Left ever got married since the ladies are always looking for Mr Right ;-)

Posted via the Android CrackBerry App!

The problem is the market doesn't always sway the way you would think. And negative news seems to have a stronghold.

Posted via CB10

Really interesting read. I'm the worst at understanding the stock markets in general, but I didn't see much mention of the consumer market. Chris, your evaluation has prized BlackBerry into a position that'll succeed in enterprise and services. How do you think the field of consumer market, will eventually play out. Do you think we will be able to get phones as well, or would they just retreated i.til they establish their position in enterprise then return full throttle to the consumer market??

Posted via CB10

Frankly... I don't give a damn!!

#BB10Believe #BlackBerryNation #BB10Army #BB10Freak #KeepMoving #TeamBlackberry #BBMCrossPlatform #BBM4All #IChooseBlackBerry10

I'm MongezaurioBerry

agreed Chris, but what i don't agree with is in the LONG LONG LONG term BlackBerry will still be an enterprise company. once stabilized and cash is flowing there is the opportunity to branch out and target other markets as well as the enterprise sector, but thats once all is stable again, the enterprise sector is BlackBerry's strong side and the side of the company that yeilds the highest margines so why wouldn't they transition to it in order to stabilize and grow

BBM CHANNEL looks promising. It has lot potential to be next great social network. It could become hybrid VINE Twitter and Facebook in one. BBM Channel fate depends on vision of who's in charge.

Twitter on Blaq is the best. Facebook works for some and others cannot even POST COMMENT. Says POST FAILED!!!

BlackBerry should sent some software engineers over to Facebook to help their software engineers make a app worthy of their Job. Right it now its a shame.

Google+ app would be nice. BlackBerry is social networking machine!! We have the HUB!!

Many are still waiting for BLACKBERRY OS 10.2 meanwhile developers are making apps for 10.2 or saying their next update would be for OS 10.2 Minimum. Example take a look at app MyAccountant.

Who's in charge??? Where is the visionary?
Take action only then sucess.

Right now theirs lot of potential to succeed in corporate sector, small businesses. BlackBerry is ideal machine to get the job done plus if security matters for your company.


Lead. Do not follow

Posted via CB10

Good read. I'm calling for a $15.00 target by year's end...

I'm not a share holder.

BlackBerry for life!

Posted via CB10

Nice write up again Chris. I actually went and read the citron write up. It was very well written and even easy for me to understand, also being a BlackBerry supporter it was very positive and interesting to read. I'm just and average Joe.

When you see so many investors hating a stock, you know to watch it. Short traders were scaring long traders away. I can't imagine that their are too many short traders left, and now people are trading BBRY long. The object is to not panic, and ride the roller coaster like a man.

Posted via CB10

This stock is going nowhere until we see some growth. Just because we are in a bull market and these Citron assholes want to temporarily squeeze some shorts doesn't mean the company is in good shape. Also don't forget who Chen is and what he has done in the past and what he has said about Blackberry.

When asked about a takeover, Chen said in order to sell the company he would need first to create value. So his end goal might be to sell the company like he did with Sysbase. Value = growth .

Now that's a fine read...

Posted via CB10. My channel pin: C001D4FB8 is on HP Nearline Storage

Very interesting. So Blackberry will likely outsource most of their phone manufacturing in the short term, and maybe stop manufacturing phones all together in the long term.

If the company's future is in services and software, what's the outcome for BB10? You think there's any chance that once the stock stabilizes and the company is back to making profits, Blackberry could convince other hardware manufacturers (LG, HP, Asus, Motorola, etc.) to adopt BB10 (BB11?)

Or do you think BB10 will forever be exclusive to Blackberry handsets?

I'm z10ing. Yes, I invented a verb.

I wish you wrote more articles more often. They are really interesting and it for some of us who aren't business people you make it really easy to understand. Keep up the great writing.

Posted via CB10

The name Andrew Left rings a bell but I can't remember for sure. Would he happen to be one of those people that predicted the collapse of the housing market in the US? I vaguely remember a similar name in Michael Lewis' book "The Big Short".

Posted via CB10

What the he'll! BES10 has had a major improvement and through has been exponential KONG before Chen was hired and invoked. These recent signings is not solely nor directly associated with him and recent new staff I'm sorry!

Look at the track record of announcements of BES signings not in testing actual signings in the past 9mths and you'll see the upward trend had already started. The proof is in the articles and blog posts right here on crackberry.

Another thing the enterprise transitioning that's been going on for a long while now it's not new so I do you've much weight into Citron article on that area because I work and know individuals on a much higher level in the tech industry , infrastructure architects, developers designers coders. There is a significant reason the first two major highers Chen has done are from former colleagues at SAP!

NEXT Expect major development I to SQL db and query. Modifying and analytics!

Waiting for  BlackBerry Q10  & Full Metal CB10!

I respectfully disagree. The main reason why businesses will go for BES is superior support for BlackBerry devices. Without devices BlackBerry barely competes in this area. It used to be they argued that they were established and stable -- guaranteed to be around for the long haul -- but, this argument is less persuasive. If BlackBerry backs away from the platform race or fails to make competitive devices, they won't even be a contender in enterprise solutions. Maybe, just maybe, they'll be able to sell to the government.

I mean, I expect Android will remain somewhat open, but as the market matures and the companies refocus their attention on additional revenue sources that take advantage of their marketshare, Apple and Microsoft will introduce mobile management solutions based on proprietary access and deep understanding only they have. Chen is smart to focus on selling to existing customers in the short run and that means enterprise, but here an idiot if he believes that he can make BlackBerry anything other than a sorry, pale reflection of its current potential by focusing its future on enterprise software solutions. I mean it's mdm competitors and enterprise challengers are way, way, way, way, way smaller. He'd need to give up BlackBerry's potential to make it profitable through this route. Better to try to compete than to fail to try...

Posted via CB10

Can't make any sense out of your argument.

First, in regards to the security space, BlackBerry is the clear leader by a country mile. The reason is simple. Security requires you to control 3 elements, severs, network connections and handsets. BlackBerry has all three. Mobile iron and Good technologies have partial sever and network control but handsets are a huge problem as Android and Apple devices are riddled with holes. Nothing new here and even the CEOs of the two companies openly admit it. The other big problem for GOOD Technologies and Mobile iron is that they sell an inferior product and everyone knows it. GOOD Technology is so bad that they have been up for sale for over a year and nobody will touch them. Not a positive sign.

BlackBerry has been and continues to be an enterprise play. It's not a matter of going back to your root but sticking to your roots. It's a huge business, highly profitable and growing by the day. BlackBerry's use of the word "prosumer" is very interesting. It tells you that they believe there is a market beyond fortune 500 companies for efficient, secure handsets and services. And they would be right. Professionals in small to medium sized firms are jumping on the bandwagon. Of course, this has been made easier by BlackBerry opening up BES and making a more consumer friendly handset.

I think the really big growth potential comes with QNX and Distributed computing. They have the ability to go cross platform in a big way. Also, there is a big need for secure cloud services and BlackBerry can be a real positive mover in the field.

Posted via CB10

Wow! that's all I can say. Well written editorial and excellent links. Thanks for sharing Chris.