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Why Ericsson Stock Jumped Today

What happened

Shares of Ericsson (NASDAQ: ERIC) jumped as much as 12% today after the company reported fourth-quarter earnings results. The network equipment provider has also been experiencing heightened volatility in recent days, driven in part by interest from retail traders on Reddit's WallStreetBets forum.

So what

Revenue in the fourth quarter was 69.6 billion Swedish kronur ($8.3 billion), topping the consensus estimate of 67.9 billion kronur. That resulted in earnings per share of 2.26 kronur ($0.27), also ahead of the 1.82 kronur that analysts were expecting. Gross margin excluding restructuring costs expanded to 40.6% in the fourth quarter, and profitability across all segments improved. Ericsson has been benefiting from wireless carriers upgrading their networks to 5G technology.

Image source: Getty Images.

"Our R&D investments have continued to drive both technology leadership and cost efficiency, which have led to increased market share and improved financial performance," CEO Borje Ekholm said in a statement. "We are today a leader in 5G with 127 commercial contracts and 79 operating networks around the world."

Now what

The chief executive warned that patent licensing revenue could negatively affect earnings in 2021 and 2022, as many important contracts are up for renewal. The standardization of intellectual property rights (IPR) will be crucial to the interoperability of wireless communications, according to Ekholm.

"Long-term business fundamentals remain strong and we will continue to invest in further strengthening our portfolio and growing our global footprint," Ekholm added. While the company expects temporary negative effects this year from IPR renewals, an acquisition, and investments to strengthen its long-term business, it's still committed to its earnings targets.

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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