2009 Review of Publicly Traded Geospatial Stocks

By Joe Francica

"Looking good, Billy Ray" ... "Feeling good, Louis!"

That exchange between Eddie Murphy and Dan Aykroyd at the end of the movie "Trading Places" might adequately sum up the feelings of many investors as they peruse the results of the annual Directions Magazine 2009 geospatial stock analysis. But before you get too excited, a closer look at the numbers will provide a more somber perspective (see Figure 1). From the 2008 "crash and burn" to the phoenix-like rise from the ashes in 2009, it has been quite a long journey. Few would have foreseen a strong finishing kick above 10,500 by December 31st when the stock market first dove into the abyss below 7,000 on the Dow last March. Such volatility surely leaves investors wondering whether a "bull" or "bear" market will emerge in 2010.

Figure 1. (Click for larger view.)

Introduction
For this year's review, I have updated our stock categories. Last year's "Geospatial Data Companies" category has been renamed "Satellite and Remotely Sensed Data Providers," which now includes DigitalGlobe (DGI), as the company went public last May. The "Enterprise Geospatial Technology Companies" category is now "Geospatial Technology." It now includes Descartes (DSGX) and ClickSoftware (CKSW), but no longer includes Pitney Bowes (PBI), which was moved into the "Enterprise IT" category where it replaced Nokia (NOK). The "Portable Navigation Device (PND) Manufacturers" category was renamed "Mobile Device Manufacturers" and is where Nokia now resides. The "Location-based Services (LBS)" category was the only category to remain unchanged.

Why the changes? As companies evolve we must change the way we understand, categorize and analyze shifting markets. The data companies are a case in point. Since both vector data companies, NAVTEQ and Tele Atlas, were acquired by mobile device manufacturers, the analysis is better served by refining the PND designation as strictly "mobile devices." This left only the satellite data providers, along with Intermap (IMP.TO), which primarily flies airborne data collection instruments, to form a strictly remotely sensed data category. Pitney Bowes was placed with the other enterprise IT companies because its Business Insight division became more fully absorbed within the Business Solutions group that included Mail Solutions and Managed Services. It is difficult to differentiate PBI's revenue purely on mapping software and data; this is also the case with its category mates, Microsoft and Oracle. While it is difficult to measure the small amount of revenue Oracle and Microsoft generate from geospatial technology, these companies stand as benchmarks for the overall information technology sector, which includes geospatial in a significant role. The same can be said for the "Mobile Device Manufacturers" category that will continue to deliver consumer oriented LBS and geospatial applications via mobile broadband technology.

The graphs that accompany the analyses below show each company's gain or loss relative to its closing share price on the last trading day of 2008.

Stock Sectors
Satellite and Remotely Sensed Data Providers (Refer to Figure 2)
  • DigitalGlobe (DGI) - DigitalGlobe went public in May at $23 per share and showed a nice gain of 18% by year's end. The company's Securities and Exchange Commission S-1 filing provides the basic information necessary for the IPO. Of course, the original stockholders benefited the most and they still hold the majority of shares. As such, the volatility of the stock remains in the hands of a few who stand to control the stock price, as in this S-1 statement: "Sales by our current stockholders of a substantial number of shares after this offering could significantly reduce the market price of our common stock." Indeed, the stock took a considerable hit in mid-May as Morgan Stanley Principal Investments, Inc. sold over 1.6 million shares on May 19. But with significant government contracts, the stock didn't swing too wildly and won't unless more of its revenue begins to come from contracts with consumer electronics or automotive companies.
  • GeoEye (GEOY): GeoEye went through many swings during the year, each time on investor jitters due to hardware hiccups. On May 12, the company reported that GeoEye-1 had trouble with its "collection profiles" but said that would not impact its service level agreement with the National Geospatial-Intelligence Agency (NGA). The stock tumbled about 17% during that period only to regain its footing by October. Then word came in December that GeoEye-1 experienced an irregularity with its antenna and data collection had to be suspended for a time. The stock again tumbled about 16%. As of this writing, the stock continues to hold at its year-end level, which saw a 37% gain for 2009 - still a very healthy return, indeed.
  • Intermap (IMP): Intermap had a problem maintaining momentum during 2009 despite new deals to license data to Tele Atlas and MapQuest. It's possible that investors are waiting on the completion of NEXTMap USA 3D data that are to be released in mid-2010. The stock declined 15% for the year following an 80% drop in 2008. It is hard to see why Intermap is having difficulties, as 3D data are becoming more in demand. Perhaps there will be a turnaround in 2010. Although, my take is that Intermap is an acquisition target.

Figure 2. (Click for larger view.)

Geospatial Technology (Refer to Figure 3)
  • Autodesk (ADSK): Wither Autodesk? It's hard to say what's going on, other than the company has reorganized its geospatial group, put more emphasis on capitalizing on the ARRA stimulus money for smart grid technologies, and sold off its LocationLogic group (see TSYS below). In short, the company hunkered down to weather the recession storm by slashing its workforce 10% last January and then saw its stock tank in March, leaving it down 42% year-to-date. CEO Carl Bass sounded several somber notes during quarterly sessions with analysts throughout the year. Our reports throughout 2009 provide the details on the direction the company is taking its software product, but it seems to be putting much emphasis on building information models (BIM). That said, the stock did return 23% for the year so its strategy has paid off for investors who stuck with the stock.
  • ClickSoftware (CKSW): When gas prices are high, a recession is looming and there is need to optimize your workforce, "who you gonna' call"? Well, obviously investors were thinking along the same lines because this company, known for logistics and route planning plus workforce optimization, began delivering record profit growth early in the year and never looked back. Then Gartner, the market research firm, put ClickSoftware into its "Visionary" quadrant and the company stock popped another 20% within one week in late May on that news. With clients like Best Buy, Xerox, Bell Canada and PG&E, ClickSoftware has a stellar customer base that is doing route optimization and workforce management. "Click" is our high flyer for the year, registering a whopping 252% return for 2009.
  • Descartes (DSGX): Like ClickSoftware, Descartes is another company providing optimized route delivery solutions, but more focused on total logistics solutions such as transportation management. It, too, saw its fortunes rise during the recession, powering ahead 78%. In December, the company reported Q3 growth of 11%, according to Seeking Alpha, and that gross margin continued to increase. Plus, the company issued a positive signal to investors in its latest report, indicating that it seeks to add to its client base in 2010.
  • Hexagon (HEXA B - NASDAQ:OMX): Hexagon is the parent company of ERDAS and Leica Geosystems, and it holds a substantial portfolio of other surveying and measurement equipment companies that can be more generically grouped under the term "metrology." Over the past two years, Hexagon has been engaged in a number of acquisitions but has seen its stock price slide, then rise to a point where today's price is at approximately the same level as April 2008. For 2009, the company's stock returned 149%, certainly one of the more outstanding values for the year.
  • Trimble (TRMB): Trimble struggled throughout 2009, barely returning to its 2009 starting point by November, after having fallen 44% during the bleakest days of the stock market's turmoil. This is not entirely surprising since, during the recession, investments in new equipment for construction and agriculture trailed off considerably. However, 2010 may be looking up for the company as the Wall Street Transcript, an investment newsletter in large-cap growth stocks, has added it to its portfolio. At year's end, the company recovered to produce a 13% gain.

Figure 3. (Click for larger view.)

LBS (Refer to Figure 4)
  • InfoSpace (INSP) - Infospace, which has suffered huge declines in value dating back to 2006, saw its fortunes finally reversed in 2009 with a solid 11% gain. In October 2009, the company reported record revenues for its 3rd quarter. In addition, Barron's reports that even analysts' views are changing. On January 7th, "shares of the developer of Internet-search products leapt 22% after InfoSpace raised guidance." Wedbush Securities analyst Kerry Rice reiterated an Outperform rating, raised estimates and boosted the target price to $13, up from $11. "With $5.99 per share [in cash] and a four times-seven times enterprise value/earnings before interest, taxes, depreciation amortization (EV/Ebitda) multiple, and substantial net-operating losses, we believe the market discount continues to represent a buying opportunity," Rice wrote.
  • Openwave (OPWV) - At the end of 2008, Openwave was trading at under $1 per share. It was completing a monumental slide from a high of $9.23 in December 2006. Then things changed under a restructuring plan that saw its Q2 2009 quarterly loss of $64 million narrow to $7.8 million in Q3. The stock doubled in value between January and April. Buoyed by an analyst's upgrade in June, the stock soared another 160%. Since that time the stock has cooled, but a December report in Barron's stated that the company is "the best pure play on the wireless-data trends...We expect Openwave's Integra service mediation product, which provides network intelligence, analytics, and compression, to benefit from mobile-data trends, with a boost from a new video compression solution going general availability (GA) in March." The stock closed at $2.28 for 2009, jumping 235% for the year.
  • Telecommunications Systems (TSYS) - As the high flyer of 2008 that produced a 145% growth in value, TSYS continued its run-up through April 2009 adding another 14%. Then something spooked the stock, possibly news that the company would acquire Autodesk's LocationLogic unit for $25 million, which it eventually announced in mid-May. The stock slid 27% from its high in April through June. However, the stock made steady recovery through the end of the year and the same Barron's report on Openwave cited above also mentioned that TSYS "should benefit on the messaging and location front." TSYS gained a modest 12% (compared to 2008), ending the year at $9.68.

Figure 4. (Click for larger view.)

Mobile Device Manufacturers (Refer to Figure 5)
  • Garmin (GRMN): You just can't keep Garmin down too long; its breadth of products in aviation and marine navigation, not to mention consumer products, is just too strong. While the nuvifone feels too much like a niche product to be widely successful, it still might find favor with location technology enthusiasts. If you were fortunate enough to buy GRMN at its low point last February, you saw your fortunes nearly double by year's end, sending the stock to a 41% gain for the entire year.
  • Nokia (NOK): A worldwide leader in hand-held mobile devices, Nokia can't buy a break. Feeling the pinch on the consumer end from Apple (APPL) and on the business user end by Research in Motion (RIM), its smartphone business lags the field. Barron's technology stock analyst Eric Savitz has been down on the stock for a while and doesn't see it recovering any time soon. Since its acquisition of NAVTEQ in October 2007 for $8.1 billion, which saw Nokia near $40 per share, the company has been on a slippery slope to under $15 per share. In 2009, the stock was down 20%. The company seems to have lost battleground in the "apps war" where LBS is riding high.
  • TomTom (TMOAF.PK): Not to be outdone by its rival, Garmin, TomTom was an aggressive marketer in 2009, slashing prices on its PND products. At one point in October, the stock was seeing 100% returns for the year. But its Q3 numbers disappointed investors and the stock tumbled by more than half its value since its high. Still, the company rose 14% and investors were reward for hanging in through a roller coaster year.

Figure 5. (Click for larger view.)


Enterprise IT (Refer to Figure 6)
It's useful to evaluate the performance of the major enterprise information technology (IT) software providers that have a stake in location technology. Microsoft (up 50%), Oracle (up 33%) and Pitney Bowes (down 14%) continue to integrate geospatial information and location intelligence solutions with their products. They represent the bellwether stocks upon which many fortunes rest in IT.
  • Microsoft (MSFT) - Microsoft launched Bing Maps this past year, the newly renamed version of Virtual Earth, added street level views and continues to integrate other "map apps" such as a direct link to geolocated Twitter feeds. But, it is disappointing that Microsoft has given only token exposure to SQL Spatial and it seems like MapPoint has fallen off the earth. Microsoft has invested resources in competing with Google through its Bing Maps API. One of Microsoft' partners, IDV Solutions, has created some solid solutions for its clients, most recently providing a mashup to support the rescue efforts in Haiti. Microsoft, though, needs to do a better job of letting the geospatial community know what it is doing with SQL Spatial and in promoting its enterprise solutions.
  • Oracle (ORCL) - Oracle has been more aggressive in touting its enterprise location intelligent solutions and continues to add functionality to Oracle Spatial. There is now an open source GDAL library for Oracle Spatial's GeoRaster function written by Geospatial Software Integration. Oracle has worked closely with the street data providers like NAVTEQ and Tele Atlas for more streamlined integration and support. Finally, Oracle has been keen to promote its MapView, a J2EE component, but it hasn't stopped others from integrating Google Maps. The big news out of Oracle this year was its acquisition of Sun; the question on the minds of many is what the company will do with MySQL, which also supports spatial data types. Oracle sees no conflict here and in fact wants to promote its support of clients who have chosen to use an open source option.
  • Pitney Bowes (PBI) - Pitney Bowes seemed to fully swallow MapInfo this year. Whereas the MapInfo name will not vanish anytime soon, my impression is that things feel different from the MapInfo days. However, Mike Hickey, who remains at the helm of the Business Insight (PBBI) division, was one of the first to proclaim loudly the need to move geospatial solutions to a cloud computing architecture. I suspect we will hear more from PBBI on this front. MapInfo 10.0 was released this year with a new interface but it's beginning to look like a CAD tool with all the function buttons surrounding the map window. It needs to move to the new Microsoft ribbon quickly.

Figure 6. (Click for larger view.)

Conclusions
The location technology portfolio above provided solid returns for such a volatile year. But don't get too excited by the gains seen in 2009. While there are always one or two high fliers to come out of the bunch, 2010 looks like a rocky road ahead. IDC analyst David Sonnen notes the company is tracking approximately 700 companies that are employing location technology within their solutions. The result is that our geospatial universe of solution providers continues to expand and that bodes well for additional growth by the core technology companies listed in this report.


Published Friday, January 29th, 2010

Written by Joe Francica



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