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Morningstar | We Think TomTom Could Be Off the Map for OEMs and App Makers in the Future

TomTom is one of several dominant worldwide digital map suppliers, providing maps for nearly 200 countries and traffic information for more than 70. However, with competition growing because of the increasingly cheaper ways to build new in-house maps (a threat to TomTom’s enterprise business) and trends in built-in auto navigation devices likely to give way to more consumer-facing navigation apps, we think TomTom will be unable to achieve excess returns over the next 10 years.While TomTom remains largely a behind-the-scenes powerhouse today--supplying maps to large app makers, like Uber and Apple, or for built-in automotive navigation units--it previously had a greater public presence. The company was a major global provider of automotive portable navigation devices, or PNDs, in the early 2000s and still sells the hardware and relevant services, though this accounts for a much smaller amount of total revenue and continues to decline in sales. Now, TomTom aims to focus primarily on its location technology offerings to auto original-equipment manufacturers and enterprise clients, divesting its fleet-management telematics division in April 2019 to Bridgestone. Using proceeds from the sale, TomTom is looking to improve its efficiency in updating its digital maps (it can currently make 1.9 billion changes per month).Nonetheless, an increased focus on digital mapmaking doesn’t imply long-term success, given intense competition. Nor does digital mapping expertise guarantee robust profitability, especially considering the hefty amount of resources involved in upkeeping a large digital map database. We remain skeptical that TomTom will generate excess returns on capital, even with expected short-term improvements in profitability from recent high-definition map contracts.