Thursday, May 24, 2012

Post Picayune lowers Nokia target price to $0.00

A lot of people wonder: When will Microsoft buy up the remains of Nokia, now that they ****** their *** up like in a car crash? How low does the stock have to go before MS buys the cadaver?

Here is my prediction: $0.00.

Why? Because as long as MS has a man on the inside (Stephen Elop... inside and all the way up), they already own Nokia as much as they need to.

People expect MS to bail out Nokia and prevent it from failing. When would they do that? Answer: When the stock price reaches $0.00. At that price, it means that investors do not expect to have any ROI at all from a purchase of Nokia. It is essentially the value of a bankrupt company. If the stock price is above that, it means that Nokia's probably not bankrupt and still has its own assets to waste on its survival. So why would MS throw its own money onto the fire when Nokia is still burning away quite toastily?

What factors determine NOK's current price, which has a market cap lower than its book value (ie. it is undervalued)?
1. Expectation that Nokia will burn through its cash and may go bankrupt in a year or three, and that it is completely committed to this doomed fate, pushes the price toward $0.
2. The possibility that it will become profitable in the next few quarters keeps it away from $0, but its current trajectory suggests that this is not likely without some miracle.
3. The possibility that Elop will be fired, and the stock will jump, and that the company can be turned around or even that the company will be liquidated before it goes bankrupt, makes for a long-shot bet that the stock will be worth a lot more than it is now.

In my estimate, many investors have hope that Nokia will stop doing what it's doing and what it has publicly committed to keep doing, and fewer have hope that they'll stick to their plan and succeed, while most investors expect them to stick to the plan and fail.

If MS doesn't already control Nokia's shareholders, then there is a chance that Nokia will come to its senses and fire Elop. In that case, we're talking about a different game. First, there will be a jump in the stock price simply from the renewed hope that Nokia may turn itself around without Elop. But there will also be a jump if there is a perception that MS no longer owns the company. If people believe that MS still wants to control Nokia, then at that point they may need to pay more than $0.00 for it, and the price will go up depending on how much they are seen to need it.

If the current trend continues---Nokia failing in its Windows Phone strategy and yet remaining committed to its own doom---I think that it indicates a general understanding that Nokia is completely controlled by MS, and that MS has no interest in seeing Nokia succeed. If MS only needs Nokia to stay afloat, it can do so at a value as low as $0. A bailout at any higher means that MS is--or wants people to see that they are--committed to Nokia's success, not just their existence. MS just doesn't roll that way. If anything, they might want such a bailout to be done secretly, so that it's not seen as the embarrassment of "WP manufacturers have to be propped up." If these speculations are indeed true, then Nokia stock price and book value should head for $0 in absence of some great success for WP and/or a shareholder revolt.

Disclosure: I have no position in either of the stocks mentioned, and I would rather see MSFT dead and buried in a pile of its own pig feces than consider investing in them, and it would be nice if NOK got the hell away from MS and climbed out of the grave Elop's been relentlessly digging for them.

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