I did NOT want to write this but I had read a few articles around the same subject even before some other info surfaced last week in the press. So ‘here goes’ anyway.
I DO look at several of the financial statements of the endurance market players on a regular basis and have also exchanged a few emails with some of the analysts in the sector from time-to-time. I certainly do NOT claim to have anywhere near the same level of market understanding as analysts do.
The following comments are my personal opinions and facts are linked to, as appropriate.
RECENT FINANCIAL BACKGROUND
TomTom report through their 3 business areas: telematics; automotive & licencing; and CONSUMER. For those who care to look deeper, the official figures (here) also break out CONSUMER into AUTOMOTIVE HARDWARE & CONSUMER PRODUCTS. The latter is where the SPARK 3/RUNNER 3/GOLF 2/TOUCH/BANDIT sit and I’ve highlighted, below, the key bits to glance at.
Consumer (€ in millions, unless stated otherwise) Q1 ’17 Q1 ’16 y.o.y. change
- Consumer products 85.2 vs 97.1 –12%
- Automotive hardware 12.7 vs 19.5 –35%
- Total Consumer revenue 98.0 vs 116.6 –16%
Consumer (€ in millions) Q2 ’17 Q2 ’16 y.o.y. change
- Consumer products 113.1 vs. 138.2 –18%
- Automotive hardware 13.2 vs. 19.0 –31%
- Total Consumer revenue 126.3 vs. 157.2 –20%
RECENT BOARD COMMENTS
HAROLD GODDIJN (CEO) – “Our strategy is to build on our navigation technologies to provide location-based content, software, and services to business customers, with high margins and recurring income.”
Elsewhere: “TomTom intends to repurchase ordinary TomTom shares for an amount up to €50 million, representing 2.5% of total issued share capital.”
Elsewhere: “Hardware revenues were lower than planned because of disappointing Sports sales. The wearables market has fallen short of expectations. Because of this and because we want to focus on our Automotive, Licensing and Telematics businesses, we are reviewing strategic options for Sports.”
Elsewhere: “Goodwill impairment: The difficult market circumstances combined with lower sales than planned for the second quarter has resulted in a downward revision in the future profitability projections for Consumer Sports. As a result, TomTom recorded a full impairment charge against the goodwill of the Consumer segment of €169 million in the second quarter 2017. This non-cash impairment charge is included within operating income (loss). The goodwill that was impaired was originally recorded at the time of the acquisition of Tele Atlas in 2008.”
Elsewhere: “The risks associated with building a multi-product Consumer business were acknowledged in TomTom’s Group Risk Profile (see 2016 Annual Report). The weaker than expected Sports revenue is a partial realisation of this risk. Taking the decision to evaluate our strategic options for Consumer Sports gives rise to a change in this risk. The most significant changes are the possible negative impact on our brand name, the unnecessary loss of talented people employed by our organisation and the negative market response to the TomTom Sports business itself. We have anticipated these risks and prepared appropriate risk responses that include investigating the strategic options for Consumer Sports as well as proactively engaging stakeholders to minimise TomTom organisational and product market disruption.
RECENT PRODUCT BACKGROUND
Last year TomTom released:
- The TOUCH band. The ‘fat’ sensor & activity tracker – for want of a better short summary
- The TomTom Spark 3/Runner 3/Adventurer – essentially the previous year’s model with a few extra nice bits. I’d see the key selling points as accuracy, onboard music & navigational functionality all of which appeal in different measures to key target markets.
- Golfer 2
- A revitalised app/web infrastructure which I seem to remember recently passed the 1 million all-time user registrations mark. Nice but still a ‘catch-up’ move.
TomTom are/were looking for beta testers of a new sports product. Perhaps that’s the Runner 4/Spark 4/Adventurer 4…or something completely different.
TomTom (and Polar) sell disproportionately better in some European markets than would be expected based on their US market shares. Ie they have some key geographic strengths.
Often the market sentiment (share price) is a better predictor of future profitability than analyst or board comments. The following chart does not take into account relative movements against the sector or against the market as a whole but, hey!, an upwards trend isn’t usually too bad!!
- Whilst stock/inventory is UP, it is still broadly similar to the same period in the previous year.
- Borrowing and Provisions are lower whilst deferred revenue is higher.
- Sales costs, marketing costs and R&D costs are all notably higher compared to previous year. ie TomTom ARE investing in the future.
So clearly there is at least a blip in consumer product sales (Combined: Runner/Adventurer/Touch/Golf/Bandit) but that blip is also happening in automotive. TomTom have formally stated that they ARE reviewing their sports division but even if they had failed to state that a review was underway in their stock exchange filings, they would (or should) be reviewing the performance in any case. It’s a statement of the obvious for a well-run company – and this is the single statement that many of the other journalistic pieces have seized upon.
TomTom is a profitable, cash-generating company (good). It has not paid a dividend this time round (bad) but has bought back shares (generally good).
TomTom has decided to take a financial hit now with “goodwill impairment”. That surely could have been taken at any time; this timing is noteworthy. I’ve often noticed with OTHER companies that bad one-off financial hits coincide with, for example, the departure of a key executive. With the arrival of a replacement executive the figures miraculously bounce back to normality. The truth, of course, is that the ‘normality’ of the true trading position has not changed that much!! I’m not suggesting that anyone in TomTom is leaving – I have no idea about that.
The figures do not show the profitability of the SPORTS division however I would assume that it is still profitable. I would be VERY surprised if TomTom simply stopped selling sports watches. Could they sell the division to someone else? (A: yes, with reservations) or float it off separately? (A: probably not a good idea) or licence some of the technology? (A: probably) or sell off specific products (A: probably not for that much money).
My suspicion would be that the TOUCH product was more the culprit than the RUNNER3/SPARK3 series and that TomTom mistimed the entry of the TOUCH – in the sense that it was late as a basic ‘tracker’ with only one key differentiator. If the RUNNER3 didn’t meet expectations then the question to be asked is “Was it much different to the RUNNER2?“.
My further suspicion is that we will still see a new and improved RUNNER 4/SPARK 4/ADVENTURER 4 in a few months time. I don’t really have an opinion on the GOLF 2 other than it can’t have cost that much to make it as it is the ‘same’ shell and probably similar firmware as the Runner.
FWIW I’ve used the BANDIT and it’s quite nice but I suspect drones, GoPros and Garmin VIRBs are too much competition there. Perhaps that product still consumed internal resources more than it should have in 2016/7?
REMEMBER: Whatever you might think about TomTom’s sports products they DO seem to meet apparent market needs of specific elements of desired user functionalities very well eg onboard music, navigation, fat sensing, GPS accuracy and oHR accuracy. And that’s probably why quite a lot of people like their TomTom product. I would suspect that TomTom appeal to more of a “lifestyle market” and perhaps ‘aesthetics’ are important there as well.
TomTom (and Polar) probably have better-performing hardware than Garmin but might be considered to be less competitive in their BREADTH of features and SHELL/BODY choices for some markets.
If I were Mr TomTom, based on my assumptions above, I would focus on widening the geographic appeal and technical development of the Runner/Spark/Adventurer/Golf series. What do I know?
I do NOT think TomTom will exit the sports market.
Q: Would I still buy a Runner 3/Spark 3/Adventurer?
A: Yes. It’s a great product if the features match what you are looking for. Usually a GREAT price too.
Other comments were made by wareable.com and forbes.com. This article is not based on those comments or opinions.