It would have been prescient to sell stocks on December 31, 2007 believing that the stock market gods had blessed the location technology sector with abundant gains during the year and so investors could be excused for taking some much-deserved profits. And perhaps some of you did just that. Despite the current tumultuous situation in the stock market, 2007 was a superb year for location technology stocks. For 2008, I'd stick around and pick up some of the high-flyers that have seen their valuations tumble, because they will be back. But first, a look at a year that saw location technology stocks take a "hockey stick" runup in value.
Acquisitions fueled the advances, and a robust finish to the seven-year bull run in the stock market kept the more established companies growing at a healthy clip. Changes in this year's analysis include the addition of Pitney Bowes after its acquisition of MapInfo, and TomTom with its acquisition of Tele Atlas. Nokia's pending acquisition of NAVTEQ has not closed as of this writing and NAVTEQ's stock is still actively traded. Trimble now includes the revenue of its acquisition, @Road, and Intermap Technologies has been added to our list of geospatial data companies.
Figure 1 shows the percentage gain or loss during 2007 for each company in the location technology stock portfolio in this analysis. Equally weighted, the average return on investment was 31%. The best performing sector was geospatial data with an average gain of 88% and the worst performing sector was location-based services (LBS) with an average loss of 28%. The location determination sector saw an average gain of 37.5% while the geospatial technology sector gained an average of only 6%.
Geospatial Technology Sector (Refer to Figure 2)
Autodesk (ADSK), a computer design and visualization company whose market capitalization now stands at over $9 billion, rose 23% during the year. Unlike most companies in this portfolio, which saw their stock decline toward the end of the year, Autodesk saw a steady rise beginning in January 2007 from $40 per share to just under $50 per share at year's end. Last November, the company forecast 19% growth in fiscal year 2009 after it reported similar revenue advances in the third quarter report. This growth is driven by strong sales of its model-based 3D products, Inventor, Revit and Civil 3D, in addition to approximately 20% growth in new licenses. A look at the Autodesk balance sheet shows increases in investments to marketing and sales activities as well as approximately a 15% increase to research development (based on generally accepted accounting principals [GAAP]).
Last March, Pitney Bowes (PBI), the maker of postal metering equipment as well as marketing software, acquired the assets of MapInfo which, combined with Pitney Bowes previous acquisition of Group 1 Software, made the company a leader in location intelligent solutions. Pitney Bowes Software, the unit formed by these acquisitions, didn't stop there. In December, this business unit finalized two other acquisitions, Encom Holdings in Australia and the software arm of Acxiom France. Also in December, Pitney Bowes Software President Mike Hickey elaborated on his plan to take his $400 million division to $1 billion within five years through both organic growth and acquisitions.
However, on October 29th, Pitney Bowes reported third quarter results in which its adjusted diluted earnings per share from continuing operations were $.63, as compared to $.66 for the same period in 2006. This fell below the company's guidance of $.70 to $.74 per share. This news sent the stock price tumbling 16% and the stock remained stagnant for the rest of the year. The company expects 6% to 9% growth in 2008.
Descartes Systems Group (DSGX) posted solid gains in 2007, rising 14%. Its success in delivering software-as-a-service (SaaS) logistics solutions gave momentum to clients like British Airways, WaWa convenience stores and Amerigas. The company acquired RouteView Technologies in December to bolster its ability to deliver services to small and medium-sized companies.
Navigation & Location Determination Sector (Refer to Figure 3)
For most of the year, Trimble Navigation (TRMB), a GPS equipment manufacturer, was a high flyer. In October, it reported a 26% growth for the third quarter that was in line with analysts' estimates. This apparently didn't impress stockholders as the stock began a gradual slide that was exacerbated by a report that the company's CEO exercised options to sell 70,000 shares in a prearranged trading plan. Analysts' estimates and the projected stock price for the coming year have been reduced because of economic pressures on the engineering construction division. However, the company continues to acquire businesses that support its vertical industry focus, such as its November acquisition, UAI, and two January 2008 purchases, HHK Datentechnik GmbH and Crain Enterprises.
It was hard to watch the roller coaster ride experienced by GPS chip manufacturer SiRF Technology (SiRF). Up 30% in February, down 30% in September and ending the year off 2%. With the hype surrounding personal navigation devices (PND), especially during the Christmas retail madness, you might have expected a different story. But downward price movement in the PND market put extraordinary pressure on GPS chip prices. SiRF founder Kanwar Chadha illustrated this point in his presentation at the Location Intelligence Conference last April and again at SiRF's Location 2.0 Summit in November. While the company's third quarter revenues did top estimates, the spike was short-lived and the stock price tumbled all the way through December.
Garmin (GRMN), the market leader in personal, marine and avionics navigation equipment, continued to be the darling of Wall Street in 2007, rallying 76% growth for the year after 70% growth in 2006. But, oh what a difference four weeks can make. As of this writing, the stock has plunged 50% since its high of $123 per share last October 29th. Pick your reason: recession induced fears, highly competitive market, time-to-market for low-priced options, maybe all three. But there's no stopping the company from introducing the nüvi 880, retailing at over $1,000, that includes real-time local weather, traffic and gas prices. Oppenheimer, Deutsche Securities and Davenport have all downgraded the stock, which continues to slide. Maybe it's time to buy?
Geospatial Data Sector (Refer to Figure 4)
Digital street centerline data provider NAVTEQ (NVT) was offered $78 per share by Nokia (NOK) last October 1st and NAVTEQ's stockholders approved the merger in December. For the year, NAVTEQ was the best performing company in this portfolio, gaining 116% and proving that geospatial data are fueling the growth for PNDs and cellular phone navigation, as well as the Web map portal explosion. For Nokia's part, it is looking beyond navigation to location-based social networking and advertising, and indeed to the entire ecosystem of the mobile lifestyle.
TomTom NV (TOM2), the maker of PNDs, acquired Tele Atlas in July for 1.8 billion euros (US$2.5 billion) and has steadily taken market share from Garmin in units sold. On October 24th, the company increased its 2007 forecast for shipments to as many as 10 million units, and expects sales to be between 1.7 billion euros and 1.8 billion euros, according to Bloomberg news. While its stock increased 57% for the year, a late year decline in price indicated that TomTom NV, too, had fallen victim to pricing pressures and competition. Like Garmin, its outlook remains uncertain.
GeoEye (GEOY) withstood the test of launch delays of its GeoEye-1 satellite from an anticipated liftoff in spring 2007 to fall 2007 and posted an impressive 74% gain by year's end. But it could not hold up to yet another delay by Boeing Launch Services, which pushed GeoEye-1's ascent to orbit back to August 2008. In recent weeks, the stock has seen its value plunge 22%. In December, the company announced that it had secured insurance in the amount of $20 million for its currently orbiting IKONOS satellite to make certain that its current investment is protected.
Intermap Technologies (IMP.TO), the provider of NEXTMap, which consists of highly accurate digital topographic maps, was added to the portfolio this year. Traded on the Toronto Exchange, the company posted gains of 76% for 2007. This company has a unique competitive advantage in providing 3D data to the automotive and insurance markets. It has been striking partnership agreements with several geospatial companies, including Autodesk, Magellan and Harris Corporation.
Location-based Services Companies (Refer to Figure 5)
In a prolonged, stagnant position after losing 21% in 2006, InfoSpace (INSP), providers of search technology for the Internet and mobile phones, ended the year down 8%. The company sold assets of its mobile services unit to Motricity for $135 million in December and its media studio unit last June. Stockholders benefited by receiving a $6.30 dividend on May 16 and a $9 dividend on December 6th following the sale of its directory business to Idearc for $225 million. In all, the company distributed over $500 million in dividends to stockholders during the year. The company still maintains its search business which it says is its highest revenue producing division.
Openwave (OPWV), a company providing messaging, gateway and location-based solutions for cellular carriers, was the biggest loser in this portfolio this year, posting a 66% drop in share price. Its high for the year came in June after a tender offer for 40 million shares from Harbinger Capital which it rejected. In August, the company reported full year earnings that showed a net loss of $164 million versus a net gain of $5 million in 2006. The company's chief financial officer resigned on January 14, 2008.
Telecommunications Systems Inc (TSYS), an LBS and VoIP solutions provider, rose 15% in 2007 following a gain of 41% in 2006. In May, it reported that its yearly estimates were in line with analysts' forecasts. In June, the stock was up 80% for the year. A precipitous decline followed and the company guided lower after third quarter results in November. In December, the company filed a patent infringement lawsuit against Research in Motion (RIM) for technology related to a wireless user's ability to access and manage multiple email accounts.
Stock market investing is never for the faint of heart, but clearly the location technology market sector is hot. Despite current stock market worries and fears of recession, the solutions and data provided by this sector deliver intrinsic efficiencies to companies and consumers looking to reduce costs such as fuel and boost productivity with logistics and routing. While a recession may affect these stock prices in the short term, the long-term prospects are still bullish because of the value of these technologies to the infrastructure of the global economy.