Nokia Is An Interesting 5G Play For the Long Haul

Finnish telecom giant Nokia (NYSE:NOK) stock unexpectedly caught up in the retail trading frenzy in the past month. Nokia has been one of the slowest movers in its industry, and the meme-stock mania has done little to push it past the resistance zone.

a backdrop featuring the Nokia (NOK) logo with a mobile phone featuring the Nokia logo on its screen in the foreground
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Nokia has been playing catch-up in the 5G race, with the pandemic affecting its rollout plans. However, it appears that it’s building up a nice head of steam with its recent 5G contract wins and its expanding cash flows.

The past 12 months have been understandably tough for Nokia in its pursuit of becoming a juggernaut in the 5G realm. Competitors Huawei and Ericsson (NYSE:ERIC) have scooped up some major 5G contracts, leaving Nokia behind in the race.

Despite the setbacks, it is not letting up as it plans to continue investing in its 5G competencies to regain its lost ground. This is likely to be another challenging year due to margin pressures and market share loss. However, NOK stock will reward the patient investor, as its comeback in the 5G race seems inevitable.

Picking Up The Pace Again

In my previous articles, I talked about how Nokia had to get the ball rolling again and secure some major 5G contracts to stay relevant. Nokia had hit the brakes after hitting 100 5G deals back in October last year. Additionally, it lost the Verizon (NYSE:VZ) contract to Samsung (OTCMKTS:SSNLF), which could have opened up a multi-billion dollar revenue stream.

However, in the past few months, the company has started scooping up some noteworthy contracts again.

It recently signed a 5G contract with T-Mobile US (NASDAQ:TMUS) along with Ericsson. Both companies had scored a $3.5 billion contract with T-Mobile back in 2018. The current multi billion-dollar agreement involves a three-year network upgrade plan.

Additionally, the company signed a multi-year 5G radio contract with mobile operator A1 Austria. Similarly, it signed a seven-year deal with mobile operator Proximus Luxembourg. Moreover, Swedish telecommunications operator Tele2 AB has tapped Nokia as its 5G core network for its home market.

On top of that, the company has also entered into a 5G contract with an Italian telecommunications company, Telecom Italia. Nokia ended the fourth quarter with an impressive 195 commercial contracts.

Penetrating the Chinese market, though, remains a challenge, with the state firmly behind Huawei. Despite the challenges, though, the company targets a 25% to 27% 5G market share.

Future Outlook

Nokia held its earnings call last month and attempted to set the tone for this year. It beat analyst estimates by a small margin in the fourth quarter, with revenues growing by 3.7% on a year-over-year basis. More importantly, CEO Pekka Lundmark talked about the challenging year ahead this year due to pricing troubles and market share loss.

Since then, NOK stock has been in a downward spiral, losing roughly 8% of its value in the past month. Many were hoping for a short squeeze to propel the stock price, but that idea did not come to fruition.

It’s tough to consider Nokia as an ideal short investment, considering its massive outstanding share count. Moreover, it has historically been unattractive to investors looking for high volatility.

Nokia’s fourth-quarter cash flows of €2.5 billion offer a glimmer of hope for investors hoping for a dividend resumption. However, that seems unlikely to lag behind its peers in the 5G race. I suspect that it will continue to re-invest the money in improving the quality of its 5G offering.

Final Word on NOK Stock

Nokia has been on the back burner for investors looking to cash-in on the 5G mania. It has scooped up several new 5G deals after a bit of a lull in the third quarter in the past few months. Additionally, it plans to continue investing in its 5G competencies to gain traction with major companies.

This year is likely to be challenging, but NOK stock will prove to be rewarding for the patient investor.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article

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