Tuesday, January 24, 2006
Traffic.com (TRFC) IPO
Story: Traffic.com provides real-time highway traffic data, gathered from a number of sources, to media broadcasters and to commercial users. Their business model so far is probably not what you would expect. It is based on advertising - trading their traffic data for advertising time on media networks, and then reselling that advertising time. They sell the data directly to certain users, but that only accounts for ca. 5% of revenue. As I see it, there are two plausibly exciting growth opportunities for their traffic data:
- in-vehicle gps navigation systems - more vehicles are being equipped or offered with the possibility for GPS navigation and mapping. Such systems will become ubiquitous over the next five years or so. Similarly, users are buying handheld navigation systems. Coupling those with a satellite radio system or other content delivery system allows for real time traffic data coupled to gps-based maps. The revenue stream here would come from selling their traffic data to the media provider (e.g. Sirius Radio, Verizon, etc.). To date they have begun such an endeavor but have not really capitalized on it.
- location based advertising - Through their website or any other place that they can spatially display their data, they have the opportunity to sell location based advertising. They have not capitalized on this as of yet either. As a note on their website, I looked up their data on 2 municipalities that I know very well. For one, I had no idea where they were talking about, and for the other they did not provide data for certain areas that always have congestion problems and are main arteries. In short, they seem to have the opposite problem of many businesses - complex and developed back end, but a crappy front end. That is a lot easier to solve than the other way around, but it does need solving for them.
Given that they have done a pretty poor job so far of developing and/or monetizing the growth areas available to their product, I'm not too impressed with their strategy. On top of that, on the expenditure side, getting the traffic data is expensive. You might think it all comes from newer toll system monitoring, but it doesn't. They still use helicopters, monitor police dispatches, etc. Even for the toll systems, they do not own the systems, so they must pay for the data. So far the story doesn't seem too hot, but how are the financials?
Company: Their top line revenue increased 37% Y/Y 2003, 14% Y/Y 2004, and 3% 9M/9M 2005. Well hell, who cares what else is going on with them, their revenue isn't growing anymore. Their business model has flatlined. Over this same time period their expenses have decreased 10% ($44.310/$49.045), not counting one-time expenses. That's ok, but what we look for in a growth model is increasing revenue and expenses, with the former increasing a lot faster than the latter. What this operating data says instead is that the business is no longer growing and is already in the cost-cutting phase.
Why are they coming public then? They have accumulated about $93M in stockholder deficit, and they need to pay the early investors back. Another red flag - they mention international expansion early in their prospectus. Going international too early will squander their resources and kill them. They need to get their plan going well domestically first, so once again, I'm not impressed with management decisions nor execution.
On the other hand, they have done significant infrastructure buildout, and a plausible argument could be made that they now need to expand or get working capital to exploit that infrastructure. But that just isn't the case, as every number they have (including R&D) has been pretty much flat for 3 years.
Stock: You never know, and people may not read the prospectus, but based on their numbers these guys are between a Blah and a Dog.With some expansion they could probably get to break even, but that is pretty low praise. Pass.
[Update: Welcome CNNMoney.com/Business 2.0 readers. Please have a look around.]
¶
7:12 AM
[Update: Welcome CNNMoney.com/Business 2.0 readers. Please have a look around.]
Disclaimer:
All ideas, opinions, ratings, and/or forecasts, expressed or implied herein, are for informational purposes only and are in no way
intended to serve as investing advice for anyone else, and should not be construed as a recommendation to invest, trade, and/or speculate in
the markets. All content of this website is purely a record of my personal activity and/or opinions. It is never a recommendation for you. I
don't know you, or your situation. Only you do. Readers should not make any investment decision without first conducting their own thorough
due diligence. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein,
are committed at your own risk, financial or otherwise. While the information provided is obtained from sources believed to be reliable, its
accuracy or completeness cannot be guaranteed. Readers must take full responsibility for any actions they take in light of information gleaned
here.
