Stocktake: Investors have little to cheer despite 40% rise in Nokia stock on Microsoft deal
Microsoft’s deal to acquire Nokia’s mobile handset business is likely to go down as a major turning point in the contemporary technology business
Nokia shares soared 40 per cent last week following the sale of its mobile business to Microsoft, and have more than tripled since 2012’s 17-year low, but chief executive Stephen Elop won’t be doing victory laps.
Now valued at €15 billion, shares have fallen 85 per cent since 2007.
Nokia was in trouble by 2010, when Elop took over and decided to tie the company to the Windows platform, although its market cap was still twice today’s levels.
That year, Gartner estimates, Nokia controlled 34 per cent of the global smartphone market, a figure that fell to 17 per cent in 2011 and 3 per cent today.
In China, its smartphone share fell from 64 per cent in 2010 to 1 per cent today.
Note Apple’s smartphone market share has been static (around 16 per cent) in that time. Samsung, which focused on Android, has been the real beneficiary of Nokia’s decline, its market share soaring, almost quadrupling to 31 per cent.
As the FT’s Lex column noted, shareholders “should be spitting, not relieved”.
Ryanair pays price for track record of bidding low
Ryanair shares suffered their biggest drop in four years last Wednesday, tumbling 11 per cent after the company issued a profit warning.
Pedantic types might quibble with the word “warning”. After all, Ryanair said profits would be at the lower end of guidance (€570 million to €600 million), and were “unlikely” to be below that range.
The problem, implied chief executive Michael O’Leary, was “exuberant” estimates – analysts were expecting profits of around €650 million.
Analysts think Ryanair is “always low-balling the guidance” but will “continuously beat our numbers because we always beat our numbers”, he said in a conference call. Over-bullish estimates forced Ryanair to “refocus” expectations “on where our guidance is, not on where the analysts wish it to be”.
Analysts might counter that Ryanair, like Apple under Steve Jobs, is a serial offender in the game of “under-promise, over-deliver”. The last time it warned profits would be at the bottom of its guided range was in 2009; the last time it missed its profit forecast was in 2004. This time, analysts – and investors – discovered the dangers of being priced to “beat and raise”, as Merrill Lynch put it.
No brokerage was as badly caught out as Morgan Stanley, however. The day before the warning, it said investors were “unduly nervous”. Ryanair’s valuation “compels” a position, with 44 per cent upside likely.
Analysts are ‘always too optimistic’
Wall Street third-quarter earnings forecasts have been slashed, from a projected increase of 16 per cent last October to just 3.7 per cent today.