Why Nokia Shares Crashed Hard Today

What happened

Shares of Nokia (NYSE: NOK) 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.

10 stocks we like better than Nokia
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Nokia wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks


*Stock Advisor returns as of June 1, 2019


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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More