TomTom is risky option on carmakers beating Google
27/09/2018 10:25
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Liam Proud
LONDON, Sept 27 (Reuters Breakingviews) - Google’s owner
Alphabet GOOGL.O tends to dominate. Witness its near-90
percent global market share in web search and mobile operating
systems. Netherlands-based mapmaker TomTom TOM2.AS , whose
shares surged 17 percent on Thursday, looks like a cheap option
that the car-software market will be different. That’s a dicey
bet.
The 1.7 billion euro company – which calls itself the
“global leader in navigation, traffic and map products” – may
sell one of its smaller businesses. The telematics unit
accounted for a fifth of TomTom’s 903 million euro revenue last
year, and sells data services to commercial fleets.
Even if boss Harold Goddijn has been mulling a sale for some
time, the timing probably relates to TomTom’s 24 percent
share-price slide last week. Key customer Renault RENA.PA and
its alliance partners Nissan 7201.T and Mitsubishi 7211.T
said they would use Google’s Android software including Google
Maps starting in 2021. Investors worry that others will follow,
squeezing out TomTom and industry-owned peer HERE.
It’s possible the fear is overdone. Carmakers are reluctant
to hand lucrative sensor data to the search giant, which has
designs on the autonomous-driving industry. The big players have
long considered Google’s and Apple’s maps inferior to
specialists. If there’s room for an independent mapping group
like TomTom, or if HERE’s carmaker owners bought it, the current
share price would be a bargain.
Value telematics at 700 million euros, a 40 percent discount
to the 6.7 forward sales multiple paid by Verizon VZ.N for
peer Fleetmatics. Next put the rest of TomTom on a 4.4 times
sales multiple, the average of NavInfo’s and Zenrin’s 9474.T
trading multiples and M&A multiples for HERE and AutoNavi,
according to UBS analysts. The bundle would be worth 3.7 billion
euros, or more than double TomTom’s market capitalisation.
Yet the anti-Google option could easily stay out of the
money. The Google Play store’s digital applications, and
community of developers constantly designing new apps, will be a
huge selling point for Renault and Nissan. Rivals with clunkier
software may fear losing customers more than they fear letting
Google in. That’d be bad for their profit margins and control of
data over time. Worse, TomTom would be left in the woods without
a map.
On Twitter https://twitter.com/liamwardproud
CONTEXT NEWS
- Dutch navigation company TomTom on Sept. 27 said it may
sell its telematics business.
- The unit, which sells car data services to owners of
commercial fleets, accounted for about 18 percent of TomTom’s
903 million euro revenue last year and 42 percent of EBITDA.
- The Amsterdam-based group’s shares fell 24 percent on
Sept. 18 after Google struck a far-reaching deal with the
Renault-Nissan-Mitsubishi alliance to supply software including
Google Maps. Renault is a TomTom customer.
- On Sept. 27, TomTom’s shares were up 16 percent to 7.17
euros by 0843 GMT. They were trading at 8.5 euros on Sept. 17,
the day before Renault’s Google announcement.
- For previous columns by the author, Reuters customers can
click on PROUD/
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TomTom considers telematics disposal to navigate Google
challenge urn:newsml:reuters.com:*:nL8N1WD0RA
TomTom says Google deal with carmakers could hit its orders -ANP
urn:newsml:reuters.com:*:nL8N1W52GO
Renault-Nissan adopts Android in coup for Google urn:newsml:reuters.com:*:nL8N1W41PB
BREAKINGVIEWS- Google’s car deal is hazard light for auto groups
urn:newsml:reuters.com:*:nL8N1W41V4
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(Editing by George Hay and Bob Cervi)
((liam.proud@thomsonreuters.com; Reuters Messaging:
liam.ward-proud.thomsonreuters.com@reuters.net))