Can BlackBerry Win the Battle of the Underdogs?

blackberry1Research in Motion BlackBerry (NASDAQ:BBRY) was riding high on Monday with a new name tag and fresh upgrade. Analysts at Bernstein Research decided to join the bulls and moved the stock to “Outperform” from “Market Perform” with a price target of $22 on the tail of the launch of BlackBerry 10.

BlackBerry’s dramatic plunge from smartphone industry leader to laggard is old news, and both the company and investors are trying to put the past behind them. Yes, BlackBerry’s market share was once a tremendous 20.8 percent, but the good old days are gone and BlackBerry’s position in the market needs to be evaluated with less weight given to its former glory, and more weight put on where it stands, and where it can go from there.

But that’s no small task. The company’s stock price has been highly sensitive to catalysts over the past few weeks. The underwhelming launch of BlackBerry 10 pulled the stock down 26 percent over a period of a few days. On its first day of trading as BlackBerry, the stock is back up about 15 percent. These tremendous swings represent buying opportunities for bulls with an appetite for risk (or shorting opportunities for bears), but they offer little insight into what the company is actually worth.

BlackBerry 10The analysts at Bernstein supply what seems to be a highly reasonable perspective on the company. According to the Wall Street Journal, the analysts wrote: “We remain skeptical of BlackBerry’s ability to orchestrate a sustainable comeback, but we believe that a successful launch will increase the option value of credible positive outcomes like a stabilized niche positioning, the development of new business models, strategic partnerships or even an acquisition.”

The smartphone market is bigger than two players, but between the two of them Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) are unlikely to give up their leading positions anytime soon. BlackBerry stands in the shadow of two tech giants, both of which have robust businesses outside of their smartphone segments. David versus Goliath is a great story, but there’s more than one David in the market.

According to data provided by IDC, the underdog that comes out on top is Microsoft’s (NASDAQ:MSFT) Windows Phone…

Forecasts are, of course, just predictions, and anything can happen in a handful of years. But hope is not a strategy. There is no clear reason to expect that BlackBerry will spread like a virus in the smartphone market and find its way into the hands of every other consumer. Not only would it take catastrophe for Apple or Google to fall out of the top spots, but BlackBerry will have to outperform Microsoft as well.

Smartphone OS 2012 Market Share 2016 Market Share CAGR 2012-2016
Android 68.3% 63.8% 16.3%
iOS 18.8% 19.1% 18.8%
BlackBerry OS 4.7% 4.1% 14.6%
Windows Phone 2.6% 11.4% 71.3%
Linux 2.0% 1.5% 10.5%
Others 3.6% 0.1% -100.0%
Total 100.0% 100.0% 18.3%