BlackBerry's BBM Is Undervalued in Wake of WhatsApp Deal

NEW YORK (TheStreet) -- Late last year I wrote that messaging was going to be one of the "sleeper" ideas of this year.

Well, after Facebook (FB) announced this week that it would buy WhatsApp for $19 billion, I'd have to say that the secret is out. This isn't a sleeper idea anymore. Messaging has arrived.

So if Google (GOOG) lost out in the battle for WhatsApp, where might it turn next to beef up its messaging offering? I think there are going to be two offerings that get a lot of attention over the next few months from potential buyers -- and they're both based in Waterloo, Canada.

One is BlackBerry BBRY, with its BBM. The other is a private company called Kik, headed by Ted Livingston, which I'll discuss in detail later.

BBM should have been WhatsApp. It was the beloved messenger app for so many years and responsible for BlackBerry's incredible loyalty from its users. Yet, it never opened itself up to non-BlackBerry users until just last year.

At the time it went cross-platform, it announced a flurry of new accounts taking the user total up to 80 million. It's thought that the numbers are now up to 100 million -- similar to Kik's.

BBM still has a lot of popularity, especially in lesser-known countries in the world. In North America, it's clear that it's been left behind by WhatsApp and Kik.

BBM had really been forgotten about until this week. But now with the WhatsApp transaction, it's impossible to ignore that BBM still could be incredibly valuable. If you used a similar valuation metric for monthly active users for BBM as Facebook used for WhatsApp, BBM is worth $4 billion. At present, all of BlackBerry is worth $4.9 billion, including $3 billion of cash.

BlackBerry says it will be free cash flow neutral by February 2015. And of course it still has its devices business, MDM business, and QNX business.

Last week, I wrote about how Japan's e-commerce company Rakuten had bought Viber for $900 million. After the WhatsApp news this week, that deal looks quaint. The market has actually reacted negatively by sending Rakuten's shares down 11% since it was announced. There doesn't seem to be much faith that Viber will move the needle much in a battle with Line in Japan.

Now, the monthly active users for both Line and WeChat had been presumed to be higher. Nomura assumes Line's MAUs are worth $73 while Tencent's are worth $231.

How should BlackBerry's be valued for BBM? Probably not much less than $40 per MAU. If so, there's great value in BlackBerry shares at these levels, assuming they do come through and become free cash flow neutral by next year.

As for Kik, I love it. I think it probably the most innovative of all the messaging companies. It has made a big push in HTML5 to allow the messaging app to bring in other functions in addition to simple texting -- functions such as games, search and other Kik-optimized Web browsing. This opens up a bunch of e-commerce and advertising capabilities in the future.

I wish I could own Kik, but it's private. It currently has around 100 million users and has done particularly well in the North American youth market. To my eyes, they're much further ahead in terms of their product road map. It's just that WhatsApp has a lot more users, which is why Facebook wanted to own it. Kik would be a highly attractive target for Google, Twitter (TWTR), Yahoo! (YHOO), Microsoft (MSFT) or any other large company with hopes of being a central player in the mobile world.

At the time of publication, Jackson held shares of BlackBerry and Yahoo!

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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