TomTom Earnings up 67%

TomTom released earnings and they had a strong 4th quarter, with net earnings up 67% on unit sales growth of 146%. Despite the huge discounting that happened over the holidays, TomTom was able to hold their margins and actually increased them by 3%. Looking at the Euro market, they still maintain a 50% market share, and claim the #2 position in the US market. They mention that the TomTom ONE is now the #1 selling GPS world-wide, not bad. What's amazing, and I shouldn't be surprised at this growth anymore, but they predict that the Euro/North American market for GPS navigation should grow to 18 million units in 2007 from 10 million units in 2006.

A couple of Gems:

One thing that the CEO Harold Goddijn said was that they will be focused on "increasing affordability," among other things, which in my mind keeps them focused on what could be an explosive growth part of the market, namely the under $250 segment. Let's hope the TomTom ONE sticks around at current (and lower) price points, or is replaced with something more affordable.

Another little gem is that they will also be focused on is development of after-market offerings to the installed base. To me this means, extending the offerings under the TomTom PLUS program, a strategic advantage for them. The TomTom HOME application is not only an easy portal for the consumer to interact with TomTom, but it's also a great way for TomTom to sell its services.

Excerpts from the press release follows:

CEO Harold Goddijn said: "Because of the large market and low penetration levels we see good opportunities for continued strong growth for TomTom.At the core of our success is our ability to deliver the most innovative and best navigation solutions to our customers. We continue to be the leading provider of navigation devices in Europe with a market share of around 50%. In the US we grew our revenues two and half times during the year and this together with continued investment in retail and advertising enabled us to consolidate our number two position in the market. Tom Tom’s total focus on personal navigation is a significant advantage. We develop our own hardware and software in-house which results in tight integration in our products which gives our customers the best possible user experience. This, together with our scale, customer base and market reach makes it increasingly difficult for new entrants to succeed in this market. New products and services, increasing affordability, and easy access to dynamic content will drive growth, faster and wider consumer adoption and competitive differentiation for TomTom. We look forward to another year of strong growth and profitability in 2007 for TomTom."

Strategy
Over the last five years TomTom’s revenue grew from €8 million to €1.4 billion and we are the world’s largest car navigation company with an installed base of eight million users. We defined the personal navigation category and created a large market.
Product differentiation is key to success and we will continue to deliver new, innovative products and services to our customers. We will make access to the network easy and we will deliver superior, relevant content. We believe that accurate, real time travel time information is critical to drive personal navigation to the next level. We will also develop our other after market solutions to address our growing installed base. Fundamentally better navigation is our vision and current and future TomTom customers will benefit from this.

Outlook 2007
TomTom operates in a growth market with relatively low levels of penetration and rapid product innovation and we expect another year of strong growth. We estimate that the European market for portable navigation devices will grow to around 14 million units in 2007, up from around 8 million units in 2006. In North America we estimate that the market will grow to around 4 million units, up from around 2 million units.
At this early stage in the year we are giving a range of estimates for 2007. We estimate that our volumes of PNDs will almost double to between 7 million and 8 million units and that we will deliver revenues of between €1.6 billion and €1.8 billion. We continue to target a gross margin of around 40% of revenue and an operating margin of around 20% of revenue. This includes a non cash accounting charge for share options of between €30 million and €32 million. Revenues are expected to be stronger in the second half owing to seasonality and to the timing of new product introductions. Revenues in the first quarter will be lower than in the fourth quarter of 2006. Investment in marketing will be highest in the second and the fourth quarters.

Operational review
The fourth quarter proved to be by far the largest quarter in volume terms. In the European market- based on external and in-house estimates - 3.4 million PNDs were sold to end-users out of a total of 8.2 million units for full year. In North America the seasonality was more pronounced with half of annual sales made in the fourth quarter.

We delivered a strong gross margin of 46% and an operating margin of 26% in the quarter. With market shares of 50% in Europe and 20% in North America, we can see the clear benefits of our scale and reach in the market. We also see a growing revenue stream from our installed base of more than 8 million customers who buy accessories and peripherals and access an increasing range of content and services through our content management portal, TomTom HOME. Our superior product quality and ease of use resulted in more than 150 consumer awards.

We continue to build our distribution in North America and we added 4,000 new outlets to reach 20,000 by the end of the quarter. We also entered the markets in Ireland, South Africa and Taiwan for the first time. TomTom products are now available in 25 countries worldwide.

We announced an agreement with Vodafone in the Netherlands which will enable our customers to plan journey times more accurately across all categories of roads in the Netherlands during the second half of 2007. The travel information service which we will provide will be far superior to the currently available services.

February 22, 2007

TomTom Earnings up 67%