Will Telenav Find Your Investment the Right Path?
TeleNav, Inc. (NASDAQ:TNAV) specializes in vehicle navigation software. It has three main end markets — auto, feature phones, and smartphones. Its feature phones end market is contracting due to the introduction of free navigation through Google (NASDAQ:GOOG) Maps. Consequently, the fabulous growth in auto and smartphones end markets is obfuscated by the declining feature phones market. At current valuation, we believe TeleNav offers an attractive asymmetric risk/reward profile and it is likely to return to growth within the next few quarters.
- Auto and smartphones are rapidly becoming the main drivers of TeleNav’s growth — as of last reported quarter, feature phones are roughly half of TeleNav’s sales. The other half is comprised of auto and smartphones. This is up from 9 percent of the sales only 4 years ago. Sales from auto and smartphones have been growing at close to 40 percent annualized rate for the past three years. At this rate, TeleNav will return to top line revenue growth within the next 4 quarters.
- TeleNav is a highly attractive acquisition target to acquirers such as Facebook (NASDAQ:FB), Yahoo (NASDAQ:YHOO), or a fixer-upper private equity fund — TeleNav’s smartphone solution is very similar to one offered by Waze, which Google spent nearly $1 billion to acquire. To put this into prospective, TeleNav’s market capitalization is only $225 million. Google could’ve spend a quarter of the money to acquire TeleNav’s smartphone navigation solution and receive the rest of TeleNav’s business for free. It gets better — TeleNav has close to $4.7 on its balance sheet. From an acquirer point of view, he/she is only paying $1 for the underlying business.
- Share buyback — Over 80 percent of its market cap is comprised of cash, TeleNav has ample capacities to accretively buy back its shares. It has done exactly this — it bought back $26 mil in FY13 and $12.5 mil in FY12. Its share buybacks signal that the management is confident that TeleNav will return to profitability in the near future and the business itself can generate enough cash to fund its transition from a feature phone focused company into an auto/smartphone focused one.