Nokia Partnership Provides Upside for Microsoft Stock

Here we examine the potential upside to our $31.56 price estimate for Microsoft stock stemming from the partnership with Nokia. Our price estimate stands roughly 20% above market price.

Microsoft Can Leverage Nokia's Large Global Presence

Nokia still leads the global mobile phone market, but its market share has been declining in recent years due to the success of competitors like Apple's iPhone and Research In Motion's BlackBerry. Microsoft has also seen struggles in the smart phone market, with its smart phone operating system market share dropping from around 9% in 2009 to 4% in 2010. Google's Android OS has grown its presence in the smart phone market during this time.

Microsoft Bing Search Should Benefit from the Partnership

According to the deal, Microsoft's Bing search will power Nokia's smart phones and Nokia's app store will be integrated with Microsoft marketplace. For Microsoft, this deal is similar to Bing's partnership with Yahoo! (YHOO). According to the terms of the 10-year search partnership, Yahoo will use Microsoft's search technology and receive 88% of search revenues generated through its own sites during the first five years.

(See our full analysis and $31.56 price estimate for Microsoft)

Through the Nokia partnership, Microsoft not only stands to gain licensing revenues for its operating system, but also search advertising market share. Microsoft competes with Google, Yahoo! and AOL (AOL) for search advertising business. Nokia has a large presence in emerging markets, which is also attractive to Microsoft.

Microsoft Bing has consistently gained market share in the U.S. over the past few months, and stood at about 13% as of January 2011. However, its global market share has been hovering in the low single digits at roughly 3.3% as of 2010. The Nokia partership provides a great opportunity for Microsoft to increase Bing's global presence.