It's TomTom Time... Again

It's December and time for the annual Apple-should-buy-TomTom rant. Of course, we know Apple prefers younger, smaller companies with brighter and clearer long-term prospects, but we also know Apple navigation sucks and if there is one thing TomTom does well it's navigation... and traffic.

To stir the pot, TomTom released a statement two days ago:

"Amsterdam, 02 December 2016 – Responding to questions in Dutch media today, TomTom (TOM2) announces that within the Consumer business unit 170 roles have been reorganized. Of those roles, 110 will move to other areas within the company and 60 roles are made redundant, of which 24 are in The Netherlands."

The announcement points to nothing in particular other than disappointing results from the consumer group. Regular followers of TomTom's quarterly earnings will be well acquainted with the glacial evolution of the company's business away from consumer-focused portable navigation devices and toward automotive, fleet and service and software oriented businesses. TomTom has cleverly launched products for golfers along with fitness devices and its Bandit action cams, but all of these categories have yet to fill the crater created by declining PND sales.

A few things are different this year. First of all, on this date, one year ago, TomTom's stock was at a nine-year high of $12.10. For most of 2016 the stock has traded in a narrow range after falling from that high.

Second of all, TomTom has built its fleet business to a last-reported total of 671,000 subscribers for one of the largest fleets in the world behind LeasePlan, Enterprise Holdings, UPS, FedEx, Verizon and a few others. The achievement ought to command a higher perceived value - especially given the frothy merger and acquisition environment.

The roster of potential acquirers is legion and includes Apple, Alibaba, Baidu, Alphabet or maybe a Tier 1 auto industry supplier (Panasonic, Sony, Continental), a car maker consortium (Toyota, Renault-Nissan, Mazda), or a carrier (Vodafone, AT&T). The list no longer includes Samsung.

The fact that neither Verizon nor Samsung saw fit to grab TomTom suggests that TomTom is either asking too much or is perceived as possessing too much baggage and/or overhead. Somehow, the existing TomTom book of business from Volvo, Ford, Volkswagen, Subaru, Renault-Nissan, PSA, and others was not enough to catch Samsung's eye. But, again, TomTom is no doubt looking for an $8B-$10B exit at least.

There is reason to hold out for that kind of pricing given Verizon's recent Fleetmatics acquisition ($2.4B) or the acquisition of video telematics provider Lytx by GTCR in February 2016 for $500M. A wave of dashcam startups have elbowed their way into the video telematics market including Nauto, Navdy, Netradyne, Carvi and others.

Most of these dashcam wannabes are targeting usage-based insurance, automated driving and advanced driver assist technologies along with thinly veiled intentions to build their own map databases to compete with TomTom and HERE. TomTom already has a map. So why isn't TomTom getting into the dashcam game? Good question. None of the financial analysts on the last earnings call asked it.

There is one ominous reason TomTom's stock isn't on the rise in the manner it was 12 months ago. The latest speculation around Apple is that the company is looking into using drones to enhance its map-making capabilities. The rumor seemed a little zany to me, but what isn't zany is Apple's courtship of the OpenStreetMap community and increasing preference for using OSM maps over TomTom maps in 100 overseas markets.

The narrative of an eventual or even possible Apple acquisition of TomTom has steadily unraveled during 2016. So this is my last Apple-should-buy-TomTom rant. TomTom is clearly an automated driving and, increasingly, a fleet play and, as such, remains a prime acquisition target.

TomTom, more than any other company, is in the existential throes of trying to determine whether it is, was or will be primarily a business-to-business or business-to-consumer company. The B2B call is strong, but the company's DNA has long derived from B2C. It may take TomTom another year, but the time is rapidly approaching when the company must pick one or the other.

Roger C. Lanctot is Associate Director in the Global Automotive Practice at Strategy Analytics. More details about Strategy Analytics can be found here: https://www.strategyanalytics.com/access-services/automotive#.VuGdXfkrKUk