What to think about Nokia after yesterday’s 16% stock price collapse

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Yesterday, Nokia CEO Stephen Elop took the stage to unveil two of import new Lumia phones powered by Microsoft'due south new Windows Phone viii Os. Despite positive reviews of the hardware, the stock complanate past xvi%.

What does all this mean? Why did the stock collapse and what does it mean for the futurity of Nokia and Windows Phone? Is at that place a real message here, or is this simply panic and depression on the part of investors?

Let's start by looking at what Nokia really announced. Two new Lumia phones, the 920 and 820, will hit the marketplace in Q4. All the attention was on the 920 because Nokia needed to bear witness it can come upwardly with a high terminate smartphone. To their credit, Nokia delivered the goods. It'southward jam packed with an amazing display, PureView photographic camera and other manufacture leading specs.

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That said, information technology looks to me similar Nokia botched the presentation past allowing Wall Street to feel uncertain nearly so many important things. Where exactly volition the device exist released? We don't know anything more "select markets". What carriers take agreed to bear information technology? Sad. Don't know. What's information technology gonna cost? Oh. Nokia didn't say. On top of this, the full general consensus is that Nokia's executive team only didn't deliver a compelling presentation.

Elop stood on stage talking almost how Nokia is "doing work" on important areas such as radio functioning, battery life, blah, apathetic blah. I'grand sad Steve, simply when you lot waste time talking about vague inquiry ideas in front end of an audience hungry for new products, you lose them. People stop caring.

In short, Nokia is to blame for the 16% stock price drop yesterday. Yes, they delivered great new products. Simply they failed to alleviate the doubt Wall Street investors worry about.

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Looking at Nokia stock out longer term

I've seen my share of stocks tank as an equity analyst over the last decade. Quite often, huge stock movements are driven by emotion. I retrieve yesterday's crash by Nokia fits that clarification perfectly. Wall Street hates doubtfulness, and yesterday'southward announcement only told us what nosotros already know: Nokia can brand good phones.

We all the same don't know much about the future success of Windows Phone equally a mobile ecosystem, what kind of support game and app developers will show towards Microsoft (and hence Nokia). We don't know what Microsoft's true plans are to compete with its hardware partners (call back they're making their own tablet?)

And Nokia still has a revenue base of operations that comes nearly entirely from what I phone call "dumb phones". Symbian is on a path towards zero. It's not like this legacy OS volition dice tomorrow, but inquire yourself if we'll even so see Symbian phones in x years. I don't recall and then.

Nokia has to shift from a company that sells almost a million non-Windows phones per day into a success built upon Microsoft. Either they succeed at this, or they have very little future.

I call back yesterday'south announcements were pretty solid. In the long term, I call back they propose that Nokia has a slightly better risk, rather than what the market implies through the sixteen% stock price drop. But think that Wall Street is driven by short term emotional thinking. In the long term, Nokia is a story that lives or dies based upon Microsoft's success in mobile.

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A quick look at Nokia fundamentals

Nokia brought in $42.5 billion in revenue over the concluding four quarters. They are losing money right now, only through cost cutting (restructuring), they promise to get back to profitability. The entire company is worth $9 billion based on its current stock price of about $2.44 (as I write this) but the enterprise value (calculation in debt, subtracting greenbacks) is simply $3.2 billion. In other words, Wall Street values Nokia's actual business as being worth $3.2 billion.

With a stock cost of $2.44 and a volume value of $iii.54 per share, you'd think Nokia might be undervalued, correct? Not necessarily. A large clamper of this volume value comes from intangible assets such as goodwill, which is generated when i company acquires another at a price college than its own volume value. This is very mutual, and happened when Nokia bought Navteq for $8.one billion. But for purposes of valuing a stock, goodwill isn't actually worth annihilation. I call up of it as a dummy asset required to balance the books.

All things considered, Nokia isn't necessarily a deal. They accept congenital up a huge organisation and they're going through incredible change. This will go on for many years. They'll either proceed to exist relevant in the new world of smartphones, or they won't.

If you believe in Microsoft and Windows Phone eight, yesterday's crash should come up equally welcome news. It gives you lot a run a risk to buy Nokia for less. But if you are skeptical of Nokia'due south ability to stay relevant, or Microsoft'southward ability to be a large player in mobile, then information technology doesn't matter how far Nokia'southward stock drops. You lot don't want to affect it.

(Chris Umiastowski is a contributing writer to the Mobile Nation network. You can meet the residuum of his posts here at AndroidCentral, iMore and CrackBerry.)