VALUATION HIGHLIGHTS
- Licensing constitutes 65% of the Trefis price estimate for Nokia's stock.
- Networks constitute 25% of the Trefis price estimate for Nokia's stock.
WHAT HAS CHANGED?
- Q4 - 2024 Snapshot
Nokia delivered a strong Q4 earnings beat, with Q4 EPS of €0.18 surpassing analyst forecasts of €0.14. This compared to earnings of €0.10 per share in the same period last year. Although revenue fell slightly short of expectations (€5.98 billion (around $6.5 billion). vs. €6.00 billion), it grew 10% y-o-y in Q4.
However, the company's full-year revenues were down 9% y-o-y to €19.2 billion, due to segment-specific revenue challenges. The company's core mobile networks unit struggled in full-year 2024 sales due to a 21% y-o-y decline in sales, which was mainly due to reduced activities in India and North America. Network infrastructure and Cloud network services revenues were down 6% y-o-y, each, due to weakness in demand for internet protocol, particularly in the Americas and EMEA region. Nokia Technologies emerged as the top performer segment and experienced a remarkable 78% increase in net sales, largely due to new licensing agreements, supporting the company's strategy to leverage its intellectual property. Despite revenue challenges, Nokia's full-year profitability increased by 40% in FY 2024. The company's proactive cost management and gross margin gains have offset the impact of slower sales recovery.
- Higher reliance on emerging markets
Nokia has seen its geographic mix of sales change a bit in recent quarters. For example, customers in the United States have scaled back on spending on 5G equipment as they work through inventory that they built over the last year. At the same time, Nokia's sales to India have soared, as 5G deployments gather pace in the country.
- Looking ahead
Looking ahead, Nokia has issued guidance for FY 2025, projecting operating profit to fall within a range of €1.9 billion to €2.4 billion ($2.1 billion to $2.5 billion). Additionally, the company anticipates full-year free cash flow to represent 50% to 80% of operating profit. For 2026, the company anticipates operating margins above 13% and free cash flow representing 55% to 85% of operating profit.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Nokia's value that present opportunities for upside or downside to the current Trefis price estimate for Nokia:
Nokia Networks
- Networks EBITDA Margin:
Networks' Wireless EBITDA margins stood at 11% in 2020 and surged to about 14% in 2021. However, margins dropped back to 9.6% in 2022 . The metric grew to about 11% in 2023 before declining to 6% in 2024. We expect the metric to improve slightly through the end of our review period, driven by higher sales of 5G equipment and solutions. If the metric rises to about 12% in the same period, it could bolster our price estimate by about 20%. On the other hand, if margins drop to around 5%, our price estimate could decline by 20%.
Licensing
- Licensing Revenues: Nokia's licensing revenues rose from Euro 1.6 billion in 2022 to Euro 1.9 billion in 2024, driven partly by new licensing agreements. We expect revenues to grow in the long run, driven by Nokia's sizeable patent portfolio and its licensing re-entry into the smartphone segment. However, there could be a significant upside to our price estimate if Nokia manages to leverage its robust patent portfolio more efficiently. If Nokia manages to increase its licensing revenue to Euro 3 billion in the long run, there could be an upside of more than 20% to our price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for Nokia at the top of the page.
BUSINESS SUMMARY
Finland-based Nokia sells mobile, fixed, and cloud networking solutions globally. The company sells products and solutions for telecommunications service providers, enterprises, and governments worldwide. The company also licenses its intellectual property, including patents and technologies in areas such as wireless communications, and telecommunications infrastructure.
