At the deCarta devCON conference, Jeff Rath of Canaccord Adams, an investment bank specializing in emerging markets, succinctly explained the current market bloodbath and what he forsees as the impact on the location-based services market.
Rath sees an unwinding of some of the macroeconomic dynamics for the first time in a long time. Leading up to this situation was a condition where inflation rates were trending lower and debt was cheap. This yielded an explosion of leverage and people bought a lot of things…much that they couldn’t afford, and that is becoming unwound.
"Macro economic dynamics are driving everything; companies are posting good and bad results but all stocks are trading down," said Rath. For much of the early part of the decade, Canaccord Adams’ Location Index, an index of publicly-traded location technology companies, outperformed the major market indices. In the last two years, that index has seen a huge decline where it now underperforms the market.
The hedge fund community is incredibly active in trading and represents 30-50% of the trading on any given day in the stock market. "Everyday you are hearing of hedge funds being liquidated en-mass," said Rath.
Rath explained that we are now seeing deteriorating earnings and a compression of valuations. For example he mentioned SiRF Technologies’ current poor market performance and legal battles. "SiRF missed a product cycle and couldn’t ride the wave," said Rath in explaining that the company could not keep up with the market demand which exploded nonetheless. "SiRF’s demise will probably very good for the industry," said Rath, referring that it could spur more innovation.
Despite the current downturn in the stock prices of the large PND players, Garmin and TomTom, Rath believes that their product roadmaps seem very robust and innovative. "Garmin is not financially at risk…Christmas will be tough for this whole segment."
Still, Rath sees a harbinger of good things that will happen. "Advertising will be the next area of innovation to bring this to market. If I can predict a year from now, you are going to see a lot of innovation and the landscape of players will change again…Somehow the Yellow Pages will play role and are in the best position here. ReachLocal, LocalMatters are other companies that Rath mentioned in the location-based advertising space. And Rath mentioned that Hipcricket published an excellent report on advertising on mobile devices…and deCarta is very well positioned to be a solution here," said Rath.
"We are going through a product cycle transition. The market is expanding and we are early in the market. There is lots of interest in the enterprise, too – telematics, infrastructure…[this is] a market that is really ripe.