Please ensure Javascript is enabled for purposes of website accessibility

Why Nokia Shares Crashed Hard Today

By Anders Bylund - Oct 24, 2019 at 12:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Finnish telecom equipment veteran delivered decent third-quarter results but also slashed its long-term earnings guidance while punching the "pause" button on dividend payouts.

What happened

Shares of Nokia (NOK 0.00%) fell through the floor on Thursday following the company's release of reasonable third-quarter results with a side of deeply troubling forward-looking moves. The Finnish telecommunications veteran had taken a 22.5% haircut by 11:30 a.m. EDT.

So what

Nokia saw its third-quarter sales rise 4% in local currencies, landing at $6.31 billion. The year-over-year comparison was almost exactly flat when factoring in the euro weakening 4.4% against the U.S. dollar. On the bottom line, adjusted earnings fell from $0.06 to $0.05 per American Depositary Receipt.

Wall Street analysts had been expecting earnings near $0.06 per ADR on revenues of roughly $6.32 billion. Nokia fell just short of both targets then slashed its full-year earnings outlook by 22%. Management's earnings guidance for fiscal year 2020 took an even deeper cut of 38%, stopping at approximately $0.27 per ADR.

A young businesswoman frowns over her smartphone.

Image source: Getty Images.

Now what

The mild third-quarter miss might be forgivable, but investors are struggling with Nokia's disappointing view of future earnings prospects. Did I mention that the company also slammed the brakes on its dividend payouts until further notice? That cash will be redirected toward heavier investments in 5G technologies. The balance sheet also needed to strengthen its cash balances, so Nokia's board said it would resume dividend payouts once the net cash position -- defined by Nokia as cash and short-term investments minus interest-bearing liabilities -- add up to 2 billion euros. That could take a while, because Nokia's net cash dwindled from $2.2 billion in the first quarter to $382 million today.

The stock is trading at multiyear lows today, touching prices not seen since 2012. Investors don't take halted dividends and guidance cuts lightly, and for good reason. These drastic moves point to deep-seated trouble within Nokia's business model. Taking these desperate measures at the start of a global rollout of next-generation 5G wireless technologies only deepens the wounds. Buying Nokia's stock today means betting on a sustainable turnaround at a time when the company really should be celebrating big wins and champing at the bit for even bigger 5G plans. That's too risky for my blood.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Nokia. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Nokia Corporation Stock Quote
Nokia Corporation
$5.21 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.