Nokia’s HERE Sale: Apple, Facebook, Alibaba Join List Of Potential Suitors
In its bid to sell its maps business, Nokia (NYSE:NOK) is canvassing interest from some of the biggest names in technology including Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and China’s Alibaba Group, according to recent reports by Bloomberg and German magazine Manager Magazin. This is in addition to the interest shown by a consortium of German car companies BMW, Audi AG (VLKAY:OTC US) and Daimler AG (DDAIF:OTC US), some private equity firms including Hellman & Friedman as well as Uber Technologies. HERE contributed 7.6% of Nokia’s company wide sales in 2014, up from 7.2% in 2013. Its sales of new vehicle licenses grew over 22% year-over-year (y-o-y) last year to 13.1 million, driven by higher uptake of in-vehicle navigation systems by customers as well as higher vehicle sales. [1] [2]
The book value of Nokia’s HERE map unit is around EUR 2 billion ($2.14 billion) but it is expected to fetch about twice this amount owing to the potential utility of its map services. There is a recognized and yet largely unmet demand for effective location-based services, and HERE could fill in the gaps for a diverse range of businesses including Internet providers, social networks, car makers and delivery services. HERE’s current standalone valuation may not take into account its full potential considering that apart from the automobile sector, it has yet to adequately monetize its services, and that it only recently refocused its strategy towards automotive and enterprise and away from its direct-to-consumer business.
Nokia’s choice of potential buyers (car makers, Uber, private equity firms) also suggests that it is looking at companies who can extract effective synergies with HERE going forward, which Nokia itself is unlikely to take advantage of after the sale of its handset business to Microsoft (NASDAQ:MSFT) in 2013. The aforementioned Bloomberg report stated that companies approached for a potential sale of the HERE unit also included Baidu Inc. (NASDAQ:BIDU), Sirius XM Holdings Inc. (NASDAQ:SIRI) and Harman International Industries Inc.
Our $8 price estimate for Nokia is about in line with the current market price.
See our complete analysis for Nokia stock here
The HERE Business
HERE is Nokia’s mapping and location intelligence business, which currently contributes less than 3% of the company’s valuation, according to our estimates. The division’s sales grew 6% y-o-y in 2014 to €970 million ($1.02 billion) with an operating loss of €32 million, excluding a goodwill impairment charge of €1.2 billion. Sales to automobile customers represent over 50% of total HERE sales, and the growth last year was aided by higher auto sales as well as higher uptake of in-vehicle navigation systems by customers.
Nokia has built the business primarily through acquisitions, starting with its buyout of Berlin-based gate5 in 2006, followed by the acquisition of Chicago-based Navteq for $8.1 billion in 2008 and 3-D map technology expert Earthmine in 2012. [3] [4] The company also made a few interesting acquisitions last year, including Desti and Medio Systems, to make its HERE unit more personalized and intuitive and boost the long-term potential of its mapping business. ((Press Release- Desti Acquisition, Nokia, May 30 2014)) ((Press Release- Medio Acquisition, Nokia, June 12 2014))
Nokia provides its map data to 80% of all car-navigation systems in the world and several major enterprises including Amazon (NASDAQ:AMZN), Yahoo (NASDAQ:YHOO) and Microsoft (NASDAQ:MSFT). [5] Microsoft is one of Nokia’s biggest customers, with its four-year licensing deal to use HERE on its mobile devices. We expect the recent efforts to expand HERE on non-Windows platforms as well as recent acquisitions and investments to help the company lay a solid foundation for its long-term growth and attract customers going forward.
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More Trefis Research
- Nokia Targeting Apple, Alibaba and Amazon in Maps-Unit Sale, Bloomberg, April 22, 2015 [↩]
- Facebook, Uber interested in buying Nokia’s Here Maps: Report, Times Of India, April 22, 2015 [↩]
- Nokia to buy Navteq for $8.1 billion, CNET.com, October 1 2007 [↩]
- Earthmine Acquisition, Here.com, Nov 13 2012 [↩]
- Nokia to Buy Medio for Analytics Data in Map Push Against Google, Bloomberg, June 12 2014 [↩]