As mentioned in my article Three US- listed Dutch Stocks To Consider, I already considered TomTom as a possible acquisition candidate. TomTom is a leading provider of navigation and location-based products and services. On May 17 Rolfe Winkler from the Wall Street Journal ran an article titled Investors Could Use an Exit Ramp for TomTom, recommending that investors have a close look at TomTom if the acquisition of Waze was finalized by Facebook Inc (NASDAQ:FB).
New events have taken place, and now Google Inc (NASDAQ:GOOG) is planning to buy Waze for $1.3 billion, according to Israeli newspaper Haaretz. The deal is expected to be announced this week.
Facebook and Waze
Waze makes a “social” mapping app for smartphones. Users turn on Waze and as they drive around, roads are drawn. They can tell traffic patterns by how fast people are moving around on the roads via GPS. Facebook Inc (NASDAQ:FB) is committed to local search and Waze would improve Facebook Inc (NASDAQ:FB)’s local search.
With more than a billion Facebook Inc (NASDAQ:FB) users the map could become really accurate, so they could incorporate this into their platform and have their own mapping service.
Google and Waze
Google Inc (NASDAQ:GOOG) has its own Google Maps, but now suddenly they are interested in Waze. Why would Google Inc (NASDAQ:GOOG) want to shell out more than $1 billion for Waze? The most important reason is that Waze’s collaborative, user-based approach to mapping represents a real breakthrough for mobile navigation apps and poses a real threat to Google Maps. In other words, it’s a pure defensive move.
Google Inc (NASDAQ:GOOG) wants to map the whole world but investigated what the real value is. In January, the company commissioned two studies, one from Boston Consulting Group and one from the European firm Oxera, to look at the geo-services industry in the United States and worldwide. The research showed that the U.S. consumers placed a $37 billion value on these mapping services. Charlie Hale, a Google Inc (NASDAQ:GOOG) policy analyst, stated:
”Worldwide, that number jumps to between $150 billion and $270 billion a year and $90 billion in wages.”
Nokia has also its own Navteq’ maps, so that would leave TomTom as the sole independent provider.
TomTom
For 2013 the company expects the PND market “to decline by 15–20% in volume year over year.“ I believe the PND market is still important for the company but they also need to turn their focus to other products and services. If you look to some numbers you will see that TomTom belongs to the leaders in the PND market. The PND market size in Europe in the first quarter 2013 was 1.7 million units compared to 2.1 million units in the same quarter of last year. The North American market size was 1.1 million units compared to 1.5 million units last year. The company’s market share in Europe grew by 5 percentage points year on year to 51%. In North America our market share decreased by 1 percentage point year on year to 23%.
The decreasing PND market also affected the company’s revenues:
The growth engines could be:
Licensing
The Licensing business unit leverages content to deliver relevant, fresh and high-quality digital maps, and content, to a wide range of customers. TomTom’s customers range from leading PND manufacturers, Internet companies, mobile phone handset manufacturers and network operators as well as governments and enterprises.
The company’s product range includes maps that cover more than 200 countries and territories globally, with navigable coverage for 109 countries, as well as enhanced content such as Address Points and 2D City Maps. Additionally, the product portfolio includes both real-time traffic products, such as HD Traffic and historical traffic products.
Licensing generated revenue in the first quarter was €30 million (Q4 2012: €37 million).
Business Solutions
The Business Solutions unit offers professional solutions for fleet management and efficiency control for commercial fleets.
The main product is TomTom WEBFLEET, a secure online application that allows customers to coordinate movements, dispatch jobs, monitor KPIs and generally manage the customer’s field service operation seamlessly from the office. Business Solutions revenue was €19 million in the first quarter (Q4 2012: €20 million).
The WEBFLEET subscriber base in the quarter grew to more than 250,000 (Q4 2012: 239,000). TomTom believes this is “the largest in the fleet management services industry.“
Final Note
TomTom’s maps are licensed by Apple Inc. (NASDAQ:AAPL) among other handset manufacturers. With more than $145 billion in cash, Apple Inc. (NASDAQ:AAPL) could acquire TomTom for a dime.
Rumors about a possible acquisition are already as old as the hills. The most suitable candidate would be Apple Inc. (NASDAQ:AAPL), but why hasn’t it materialized yet?
Personally I think the founding fathers of TomTom don’t want to sell their company for a price that doesn’t correspond with the real value of the business. They still might be convinced that the next growth phase will bring the company to a desired stock price and market cap.
As mentioned in my former article the company is diversifying its products. At TomTom’s Launch event on April 17, the Consumer business unit announced a number of new products. They presented a new range of PNDs that are powered by a new navigation engine, NavKit. NavKit will power the next generations of products across the business and will also be available for third party customers. Additionally TomTom announced a range of new GPS watches for runners, cyclists and swimmers.
This new direction in consumer products could attract new, interesting parties such as NIKE, Inc. (NYSE:NKE) on the scene. NIKE, Inc. (NYSE:NKE) and TomTom have collaborated in the past to create the Nike+ SportWatch GPS. This past partnership with Nike could get a new boost if mapping and navigation solutions become more integrated in sports products.
The article in the Wall Street Journal made sense, however the final conclusion is that not only mobile handset manufacturers like Apple Inc. (NASDAQ:AAPL) could be interested in TomTom moving forward.
If Waze would be sold, TomTom would be the last independent provider of digital maps that cover much of the globe. A map will be a key interface for local discovery and commerce. This has become a scarce and valuable asset.
Let’s see what happens. However, one thing is for sure: it’s just a matter of time, the company will be acquired!
Johan Seijkens has a position in TomTom listed on NYSE Euronext Amsterdam. The Motley Fool recommends Apple, Facebook, Google, and Nike. The Motley Fool owns shares of Apple, Facebook, Google, and Nike.
The article TomTom, an Acquisition Candidate? originally appeared on Fool.com and is written by Johan Seijkens.
Johan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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