TomTom (OTCPK:TMOAF) is a Dutch location technology company that markets its products and services to both consumers and businesses, according to which the company segments work: Location Technology (B2B) and Consumer (B2C). TomTom's Consumer division sells personal navigation devices, and this is what the company is best known for. PNDs have long been the company's cash cow, but it is in rapid decline (Q1 revenue -40% YoY), and the company needs Location Technology (aka Maps) to take over soon.
That the Consumer segment is in severe decline is clear to all observers, but it is still propping up the company's multiples. In addition, Maps will face both cyclical and structural headwinds over the next few years.
Automotive background and competitive forces
Maps includes both Enterprise and Automotive whereby Enterprise consists of map license sales to non-automakers, such as Microsoft (MSFT) and Uber (UBER). The Automotive segment consists of automakers that license the maps for in-dash navigation systems. Automakers place orders for one of their models, and TomTom receives a licence fee for each in-dash system with its maps sold.
At this moment, TomTom is one of the three global companies supplying these maps to auto OEMs. For years, the company has been kept afloat by major automakers that fed TOM2 orders for smaller models. E.g. for its blockbuster models, Volkswagen (OTCPK:VWAGY) selected (Nokia (NOK)) HERE, but for some minor models, it selected TomTom to prevent HERE from becoming a monopolist. HERE had much higher sales and had an R&D budget that was multiple times the size of TomTom's. Of course, the commoditized nature of the core product, as well as the high incremental margins, has eroded pricing power of all players and has hurt profitability of all firms involved in this sector.
That was a bad situation, but a true watershed
