So the so-called efficient market is saying that Nokia's businesses, that is, mobile phones, smartphones, patents, world class mapping, Networking, is worth $6.9 Billion. With almost a billion in income for patents, the enterprise value barely pays for the patent business. Yet we call this an efficient market.
Lets do a reality check as compared to Blackberry. The most famous of investors made their money buying assets at a huge discount to market. Sometimes the market gets it wrong.
Lets compare BBRY to Nokia
Sales 12.6B 40B (20B Device Sales)
Price to Sales .66 .33
Enterprise Value 5.6B 6.9B
The obvious mismatch is the enterprise value, BBRY has 2 businesses, Nokia has 4 major businesses and over 3 times the sales yet there is just over $1Billion enterprise value difference.
If the market was efficient as compared to BBRY, the phone business alone would be worth $13 Billion, patents worth 5B, Mapping worth 3B and NSN 9B for a total of 30 Billion at a minimum or $8 per share today.
So Nokia should be worth a least 5 times the value of BBRY right now on a conservative estimate.
Yet the market makers and their best customers would make us believe this stock is only worth $ 3.33.
2nd in the JD power survey (7th last year), China Mobile contract, 10% Non-IFRS operating profit promised by Nokia in press releases yet priced for bankruptcy. Maps used by almost all car makers, a complete refresh of innovative low end, middle, and high end phones and smartphones, 10% market share expected end of 2013.
You do realize that 'enterprise value' is just a variation of market cap right? its just taking the market cap and netting out the debt and cash. So you are really just frustrated with the market cap.
So maybe ask yourself 'why such a low market cap' when the assets are so good?
the answer is simple:
1. rapid decline in market share
2. cash burn and losses at both Nokia and NSN (not withstanding the last quarter's profit, the company itself forecasts a return to losses)
3. while Lumia phones seem to be adding .5% to 1% in market share sales, the other phones are losing 4% per quarter.
investment funds arent' going to jump in till they can model and see exactly when the market share losses stabilize and the company starts on a path of growth and accretive activity. there is too much unknown as far as the sustainability of the business right now for institutinos to buy into it.
If mgmt is good, at some point the company will align its cost structure with the marketsahre and sales it can generate. right now windows phone continues to be a phone with less than 3% market share... Nokia phone's cash cow is losing 4% of the market each quarter, and the smartphone business is losing $220 million each quarter... if smartphones can't get profitable and get marketshare to 5%+ then this company is screwed and will just continue to burn cash each year till they have to sell off the businesses.
Personally I think they will stabilize and turn it around, but the lumia sales are very disappointing. I don't see it happening in 2013 anymore. more a gradual multi-year market share improvement as windows 8 gains more acceptance.
Enterprise value is not a variation of Market Cap. EV is the value most used when a company is being considered for a takeover. There is quite a bit of difference.
Rapid decline in share is old news that you typically read on SA/MF, we know why it declined. They have viable new products out there to turn things around. Cashburn will be minimal if at all. Cashflow is more important than eps right now and I assume everyone knows the difference. EPS can be negative but cash balance can still go up because of depreciation costs, inventory rebalancing, improved accounts receivable etc,.cost savings, cutbacks.
In so far as Nokia's market share, don't concentrate on that solely, look at the actual qty sold and compare that to Apple when they first started, we are doing much better than Apple did. Why ? Because the market for smartphones is already established, people want them, Nokia has infrastructure to build and sell phones more than Apple ever had. Soon we will be seeing maajor qtr to qtr increases. Nokia themselves are on record as saying their growth will exceed the growth of the market which is reported to be about 29% this year. So they are saying their growth will be higher than this.
This is a stock that requires patience, it is no coincidence that a Korean and a Finnish company are vying for control here. They are the 2 most most educated countries in the world. Nokia has been in this business much longer and are true innovators which makes me believe they have the edge. In addition MSFT has a patent on live tiles, what is android and ios going to do to distinguish themselves like NOK/MSFT did ? Their phones look old now, ask yourself how old will they look 2 to 5 years from now . The table has turned, the competition is under pressure to do something meaningful now. Yet what have we seen from Sam and Apple, new phones without significant upgrades, they have to do better than that.
That is understandable, exactly like the way IBM behaved in 93, Apple in 99. Markets are also slower to react to reality that Nokia is re-emerging . To exploit this difference is exactly the stuff made of Warren Buffet 's famous value investing or Peter Lynch value accumulation; remember the mantra when everyone is buying its product and not the share, you should potentially be the trail blazer . I personally heavily increased my interest in Nokia when dropped below 3.5.