Navigation and mapping services are some of the most-used smartphone apps, allowing users to find their way around without a separate navigation device. Google Inc (NASDAQ:GOOG) was quick to catch on to the importance of this type of service, and has established itself as the most popular provider of mobile navigation services. However, faced with competition from other providers, the firm is looking for ways to stay ahead. With the planned acquisition of Israeli start-up Waze, Google is trying to solidify its position in the field.
Waze Deal
Waze, founded in Israel, provides a free mapping and navigation app which is reportedly used in 190 countries. With only around 100 employees, the company has grown very quickly, and now has some 47 million members. The app relies on GPS signals from its users to chart traffic flows, allowing members to quickly bypass traffic jams, construction, and accidents. Additionally, users are able to update maps as well as add data on gasoline prices.
Google Inc (NASDAQ:GOOG) is known for making large acquisitions, and while the reported sum of $1.3 billion is quite a large one, the firm has plenty of cash on the books. The firm ended last period with around $50 billion in cash, and has an operating cash flow in excess of $16.5 billion. As of yet, it is not entirely clear how Google plans to monetize this acquisition, as Waze has been struggling with creating income itself. Some commentators have speculated that Google means to buy the firm simply to spite the competition.
Staying Ahead of the Competition
Google Inc (NASDAQ:GOOG) is not the only company that has been eyeing up Waze. Apparently Facebook Inc (NASDAQ:FB) was also after the Israeli firm in an effort to increase its presence in the mobile space, offering up to $1 billion. However, the deal fell apart as the company was against Facebook’s plans to relocate the Waze employees to California. According to Ha’aretz, a leading Israeli newspaper, Google’s primary aim of this acquisition is to thwart Facebook Inc (NASDAQ:FB)’s efforts to enter the navigation market. If this is indeed the case, it is a strong reflection of Google Inc (NASDAQ:GOOG)’s concern with Facebook’s growth.
Apple Inc. (NASDAQ:AAPL) is the more serious competitor in the mapping and navigation space, having released its own Apple Maps system for Apple devices. However, the release was initially nothing short of a disaster, with frustrated users complaining about the system’s unreliability and management even offering an apology for the program. Despite several reports that Apple Inc. (NASDAQ:AAPL) was also after Waze, CEO Tim Cook denied having put in a bid.
Valuations and Metrics
Google Inc (NASDAQ:GOOG)’s stellar run over the last year or so has left the company trading at a fairly steep valuation, the stock now trading at around 26.5 times trailing earnings. However, the forward P/E is quite reasonable at around 16.6. The price to sales of 5.46 is a little over the industry average, but the operating margin of around 25% is considerably higher. Based on these valuations, investors may want to wait for a pull-back, although they may be left waiting for a while considering the stock’s strong performance.
The Bottom Line
Google Inc (NASDAQ:GOOG)’s plans to acquire Israeli app maker Waze are a clear indication that the internet giant plans to remain dominant in mobile mapping and navigation. While it is as of yet not entirely clear how Google plans to make money with this acquisition, some commentators speculating that it is simply a jab at Facebook, the deal should allow Google to keep growing in one of mobile’s most important areas.
Daniel James has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, and Google. Daniel is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Google Plans to Solidify Position in Navigation originally appeared on Fool.com and is written by Daniel James.
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