2010-2011 Review of Publicly Traded Location Technology Stocks

By Joe Francica

Ed. note: This is a two-year review of publicly traded stocks that impact the geospatial technology sector. This is a long-range view of what’s been going on in the business of location. Disclosure: I hold positions in ORCL, IMP and NOK and recently disposed of positions in GRMN and TSYS.

“Do you want to go faster? Do you want to go really fast? Then hold tight!”

When I was a teenager, I used to go on a whirling, spinning, roller-coaster-type ride called “The Himalaya” located at one of the piers at the Jersey Shore (yes, THAT Jersey Shore). The DJ who played rock music while we went spinning in circles used to ask that question as if he wasn’t sure why we paid money to be there in the first place. It was a tease, of course, as we screamed to “go faster!”

The stock market over the last two years has teased us onto a similar roller-coaster ride, providing all the excitement and consternation of the amusement park kind. Except it hasn’t been nearly as much fun. What looked like a solid foundation for the geospatial technology stocks at the end of 2009 has turned into quicksand. For companies focused on geospatial and those in the mainstream information technology (IT) sector, the results have been disconcerting with few exceptions. As Figure 1 demonstrates, the majority of stocks that showed some promise in 2010 reversed course in 2011, with a few landing at almost the same position in which they ended in 2009. Others simply continued the slide that began two years ago.

Yet, all the prognostications for the general technology sector heading into 2012 are guardedly bullish. Financial analysts, aka the “talking heads” at CNBC and others, are calling for strong performances for bellwether stocks like Cisco, IBM and Apple. But, with a huge question mark in Europe and a build-up of lactic acid for the sprinting tiger in China, you’d be wise to hold on tight for what could be another wild ride in 2012.

Changes From the 2009 Report

The changes to the report this year include the elimination of InfoSpace from this analysis, as it is focusing less on delivering location-based solutions. Added to the report this year is the European Aeronautic Defence and Space Company N.V., or EADS, which is the parent company of Astrium Services, which acquired Spot Image in 2008. EADS will be included in the Earth Observation sector, which has been renamed from the more verbose title of Satellite and Remotely Sensed Data Providers. Thales Group, a multidisciplinary, multinational corporation, has also been added because of its extensive portfolio of geospatial products and services. It more closely matches the products and services with Hexagon and other large geospatial technology companies. Descartes Systems and ClickSoftware were deleted from the report as their market capitalizations (less than $500 million) and niche solutions, which only peripherally integrated location technology, did not match those of the other companies in the Geospatial Technology Company group.
 

Figure 1

Two-year Returns

Figure 1 shows the stock price returns for each company in this analysis for 2010 and 2011. As each company is reviewed below, numbers in parentheses refer to the two-year stock price performance, with the call symbol in block parentheses. Only four companies ended the two-year period with positive returns.

Stock Sectors

Earth Observation (Refer to Figure 2)

Data fuels geospatial technology. Companies in this sector provide remotely sensed imagery that supports the base mapping and location intelligence applications that are foundational to GIS. Earth observation data are resurgent in geospatial because of better availability (e.g. “cloud”) and more differentiated products (e.g. higher spatial and spectral resolution) for analysis.

Figure 2
  • GeoEye [GEOY] (-24%) - The stunning reversal of fortune for GeoEye and by association, DigitalGlobe, is tied directly to the current discussions swirling around continued support for the $7 billion EnhancedView contract from the National Geospatial-Intelligence Agency (NGA). While humming along with a steady 20% gain through the end of 2010 and into 2011, a slide toward negative territory began in mid-2011.
  • DigitalGlobe [DGI] (-34%) – Maybe it was the curse of Barron’s with its positive recommendation in September 2010. Or, maybe worries over the possibility that the NGA is reconsidering the EnhancedView contract as mentioned above. But anyway you look at it, the company took a huge hit in 2011. You can’t ignore the fact that if most of your revenue comes from contracts tied to the defense industry, investors will get jittery. While Barron’s believes the stock has bottomed and budget cuts won’t be as severe, the financial publication got it wrong suggesting part of the decline was due to a transition to a new CEO. The departure of Jill Smith was known long before Jeffery Tarr assumed the role.
  • Intermap [TSE:IMP] (-77%) – Intermap’s fall into the abyss was swift and sustained. But there are signs of life. A good synopsis of where the company stands now comes from the company’s Q3 press release on November 11, 2011. “We’ve now achieved more revenue in 2011 than the Company did in all of 2010, and we will enter 2012 with a significant amount of revenue from existing contracts yet to be recognized in future periods,” stated Todd Oseth, Intermap’s president and CEO. “A new Intermap is beginning to emerge and we believe we are turning the business around by driving three primary revenue streams for the Company: NEXTMap data licensing, 3D business intelligence applications (3D-BI) and mapping services.”
  • EADS [EAD.PA] (+68%) – It made a lot of sense for EADS/Astrium to acquire Spot Image. The big question now is whether it can turn it into a commercial success. The launch of the first of two Pleiades earth observation satellites, the successor to SPOT, was successfully completed on December 16th. It features 50-cm spatial resolution and a 20-km ground footprint. A second Pleiades will provide daily revisits and complete a four-satellite constellation with the two remaining SPOT satellites in orbit. EADS defied the doldrums of other European companies, turning in a 68% gain over the last two years.

Geospatial Technology (Refer to Figure 3)

Companies in this sector supply a broad range of hardware and software to the global engineering and government markets for geospatial products. Most of these companies, while diversified, provided a close approximation of the overall health of the geospatial technology market.

Figure 3
  • Autodesk [ADSK] (+15%) – Autodesk was a high-flying company whose fortune was tied to the global economic recovery until the reality of a potential European currency collapse sank the stock. And still, the stock has gained an impressive 15%. Reorganizations have left the geospatial group to find a home within other divisions, focusing on infrastructure projects and utilities. With its Infrastructure Design Suite, Autodesk seems comfortable focusing on core capabilities in building information modeling (BIM) and 3D. Recently, Autodesk and Pitney Bowes initiated a strategic partnership which leverages their respective strengths in design and analytics.
  • Hexagon [HEXA B] (-8%) – Hexagon’s focus on metrology and the acquisition of companies in the geospatial sector yielded impressive gains until it, too, was jolted by Europe’s morass. But the strength of Hexagon is in its diversity. While readers will find familiar names in Leica GeoSystems, Intergraph and ERDAS as its core geospatial companies, they may not be as familiar with NovaTel, GeoMax and MIKROFIN, which specialize in GNSS technology, surveying and laser leveling equipment, respectively. Clearly, Hexagon is banking on the growth in infrastructure projects in the emerging markets to fill its coffers.
  • Thales Group [HO.PA] (-30%) – Thales is a multinational, multifaceted technology company in defense, space, transportation and security … all domains that incorporate geospatial elements. But as such, it has seen its stock sink with the European woes. Its Q3 report noted flat sales in Europe and North America but a 53% gain in emerging markets for the nine reporting months. In the same report, the company affirmed its projected sales growth in 2012.
  • Trimble [TRMB] (+69%) – The winner. One of only three companies in our survey that gained in both 2010 and 2011 with an impressive 69% gain over the past two years. But wouldn’t you think that Trimble would suffer from the same problems that plagued other companies that service the infrastructure economy? In its Q3 report, CEO Steve Berglund put it this way: “The third quarter results confirmed that Trimble can continue to grow under the current economic conditions. In the quarter we saw year-over-year growth in all four segments for the first time since 2008 … The Mobile Solutions segment returned to profitability and we expect to see continued improvements each quarter. The Engineering and Construction and Field Solutions segments both continue to show growth across most product lines and geographies. While the economy remains uncertain, we are encouraged by the progress we are making in integrating our acquisitions, expanding geographies and extending our reach into new adjacencies.” In late October 2011 the company also announced a $100 million buy back sending the stock up 20% in a two-week period.
  • ITT Exelis [XLS] (-18%) – The newest company in our survey, ITT Exelis, is a spinoff from ITT Corporation. The transaction, completed in early October 2011, was tax-free for ITT shareholders but that was perhaps the last bit of good news, as the stock slid all the way to the end of the year, ending down 18%. ITT Exelis is the defense and information division from ITT and includes the ENVI image processing solutions. ITT Exelis includes divisions in defense (C4ISR), space and electronic systems.

LBS and Mobile Device Manufacturers (Refer to Figure 4)

It’s difficult to characterize the location-based services (LBS) marketplace with only five companies. Because of the numerous startups, spinoffs, acquisitions, failures and all the other gyrations of an emerging technology, it’s nearly impossible to say that these are the bellwethers that indicate growth or maturation. But it’s the best we have for publicly traded stocks so use the information based on that caveat. Still, these are very important companies to watch as mobile LBS market grows.

Figure 4
  • Nokia (NOK) (-60%) – It would be incorrect to tie the fortunes of NAVTEQ’s parent company to the success it has had in developing and marketing products for both the mobile consumer and enterprise geospatial markets. It has begun to offer data for indoor positioning with the launch of its “Destination Maps” and is certainly looking ahead toward covering all the potential avenues for where location-based advertising and marketing will trend. Nokia has been more focused on recapturing the market share in the cellular phone market lost to Apple and others, and began the launch of its Windows Mobile-based smartphones at the Consumer Electronics Show (CES) this January.
  • Garmin (GRMN) (+29%) – Garmin has notched impressive gains over the past few years, up only slightly (1%) in 2010 but returning a 28% gain in 2011. Shaky economy? Garmin has simply used it as an opportunity to grow. Third-quarter numbers were impressive showing year-to-date gains in its outdoor (+5%), fitness (+28%), aviation (+12%) and marine (+10%) segments, with only the automotive segment experiencing a decline (-9%).
  • TomTom NV [TMOAF.PK] (-61%) – TomTom put a stake in the ground, banking its fortunes on the success of using “traffic” as the unique selling proposition to consumers. At the end of 2010, it released its “Traffic Manifesto.” However, the company, which saw a 17% gain in 2010, reversed fortunes to tumble precipitously in 2011 and was forced to continue to layoff personnel by 10% (or 450 jobs) in early December 2011. Operating revenue for Q3 was off 26% year over year.
  • TeleCommunication Systems Inc. (TSYS) (-75%) – This company, specializing in “high-reliability location-based services (LBS) and end-to-end LBS solutions for branded and white-label applications” (source: company), was thedarling of the geospatial stocks in 2008 and 2009 but has tumbled mightily, dropping 75% over the last two years. Why? The full-year and quarterly reports show record revenues but declining net income. The stock has been downgraded by analysts and that looks to be the reason for the precipitous drop in the price. However, the company is positioned in many LBS markets and top line revenue continues to grow. It’s entering the cybersecurity arena and has filed for more patents in the location technology area. It’s hard to see why this company is stumbling and it could simply be misunderstood by the investment community.
  • Openwave (OPWV) (-36%) – The company remains as a member of this review because it offers Location Manager among its many other solutions to the ecosystem of mobile computing. Some of the volatility of the stock price is due to a decline in revenues and legal battles with Apple and RIM over intellectual property infringements, although these are not related to location technology solutions that the company offers.

Enterprise IT (Refer to Figure 5)

The companies in this sector have made significant investments in geospatial technology and yet it comprises just a small segment of their business. However, because each has dipped its big toe into our space, they are important to inspect as location-based information becomes increasingly integrated into mainstream information technology applications. Each can location-enable many applications in its arsenal of software solutions. Not included in this section are companies like IBM, Google and SAP. Each has partnered with other companies in this report to supply them with technology or data and hence represent a layer “once removed” from the geospatial ecosystem.

Figure 1
  • Microsoft [MSFT] (-11%) – Microsoft investors are not happy campers. If you are a going to be a good tech stock you’d better either grow or pay a nice dividend. It hasn’t and it doesn’t. With loads of cash in the bank, the company seems stuck between the PC and mobile world, hoping that its deal with Nokia pays off in competing with Apple for some part of the exploding world of mobile technology. Microsoft had a few geospatial announcements this year with the launch of a new Bing Maps iOS SDK for iPhone developers and upgrades to its UltraCam line of digital aerial cameras. However, its Bing Maps team seems not to talk to the SQL Spatial team in what could be a competent competitor to Oracle in the business intelligence space. But Microsoft is silent in this space.
  • Oracle [ORCL] (+6%) – From apps to database to “big data” appliances, the juggernaut that is Oracle continued to roll … until Q4 when inexplicably it missed its numbers and missed them big, causing investors to flee the stock. As recently as mid-October, the stock had been up 40%. However, as of this writing, investors have kicked the stock back up 10%. For Oracle Spatial, there is no database rev coming in 2012, but the number of spatially enabled Fusion apps continues to grow, from Oracle Fusion Human Capital Management to Oracle Fusion CRM Sales to Oracle Utilities Advanced Spatial Outage Analytics. When Oracle can flip the switch and embed spatial functionality into just about any application, it puts itself into a position to dominate the enterprise location intelligence space.
  • Pitney Bowes [PBI] (-17%) – PBI has been on a roller-coaster over the last two years, first up, then down, but the trend line is decidedly down. Is the mailstream business in that much danger of collapsing? The answer might be in the current status of the U.S. Postal Service’s financial troubles or your own personal habits of using the postal system. Executives at the company gave a number of reasons for the more recent stock declines in a Q3 report that included settlements with the IRS, insurance reimbursements, etc. For the MapInfo brand, keeping it top-of-mind within the company continues to be a challenge. As of this writing, the division responsible for MapInfo changed its name from Pitney Bowes Business Insight to simply Pitney Bowes Software, which still includes the Group 1 Software solutions.

Conclusions

This report remains incomplete in defining the overall health of the geospatial marketplace because of the absence of private companies like Esri and Bentley Systems. So, based on the information above, is there a conclusion to be drawn from these stock prices over a two-year period? Taken as a group, the growth prospects and the market risk are vulnerable to economic factors especially because geospatial technology products are used for infrastructure projects. Companies like Autodesk, Hexagon, Thales, Trimble and others depend on a growing global economy. Geographically, North America appears stagnant, Europe’s in trouble, Brazil’s growth has slowed, and China has tapped on the breaks. However, innovations in indoor positioning, real-time traffic and the fitness sector will drive LBS. Integration of location technology with mainstream enterprise IT, such as business intelligence, and analyzing unstructured, location-based “big data” from social media and volunteered sources will have a profound impact on delivering location intelligent decisions. The quick stride we’ve seen over the past few years has certainly fallen off pace, but the interest in using location-based information has not abated.


Published Thursday, January 26th, 2012

Written by Joe Francica


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