In the past, Nokia was a powerhouse in the global market but similar to BlackBerry, it failed to cash-in on the smartphone revolution. Starting out as a paper company, Nokia rose to become one of the Europe's largest industrial movements in the late 1900's. Now with a dwindling market share but plenty of cash, this company is poised to start growing again.
Nokia's current business method is just to roll out phone after phone. It has entered a partnership with Microsoft that allows it to be one of the sole users of the Windows Operating System, along with HTC. Though this caused many investors to worry about the dependency of the company, it has allowed for slow and steady growth as Nokia strides away from its original Symbian OS. With a market share of about 5%, it has outpaced many other devices companies through its stable growth rate and expanding line of phones.
One significant problem with Nokia is that its revenue has been gradually decreasing over the years. With increased competition in the smartphone market, Nokia has released many lower tiered smartphones at prices cheaper than competitors in order to gain a higher market share. Some of these phones are priced so that the company barely earns anything, greatly decreasing its profit margin. This has resulted in losses from selling certain phones, with the margin often falling into negative territory. If Nokia is able to gain a higher market share, it will be able to sell higher priced phones to a larger base of consumers. For now, however, this causes huge concerns for investors.
Even though it has nearly $7 billion in debt, Nokia's $12.64 billion in cash greatly outweighs that number. This balances out to $5.64 billion in cash, which is over 1/3 of the entire company's market cap. If revenue and profit were to continue falling, the company's cash would keep if afloat for a few quarters. However, it wouldn't last as long compared to most other companies as Nokia has over 87,000 employees.
Nokia's stock has extreme fluctuations, as is expected of a penny stock, but is actually one of the more stable technology stocks. It has posted gains of 67% this year, and has doubled its value since bottoming out at around $1.80 in August of 2012. Though it is much higher than it was a year ago, it is also significantly cheaper than the $60 peak it reached during the tech boom of 20000. Last quarter, Nokia released earnings that were significantly below analyst estimates. This is a huge reason to doubt the stock as its revenue dropped a staggering 25%. However, Nokia paired those losses and ended the day in positive territory, demonstrating its ability to regain losses.
The sale of its Lumia line of phones has been gaining, rising 32% in the second quarter of 2013 alone. It has been continuously releasing more devices that are aiming for all tiers of the smartphone market. The Lumia 1020, for example, boasts a 41 megapixel camera that easily beats the 8mp camera of the iPhone. In fact, it rivals most professional cameras at a much cheaper price. The Nokia Lumia 900 now sells at $200 without the signing of a contract, making it one of the cheapest high-end smartphones. The Lumia family includes a large variety of phones, and has prompted many businesses to switch over from Blackberry. Nokia has long been famous for the durability of its phones, and like them, the company has been built to last.
Nokia has plenty of room for growth, but its falling revenue and profit margin should cause concerns for investors. Its stock has remained relatively stable in the past few months, but holds extremely high risks.
Sources:
Yahoo! Finance
FINVIZ.com
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