These Acquisition Targets Are Better for Facebook

Tedra is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Alas, it became official on Tuesday that Google (NASDAQ: GOOG) has indeed purchased Waze, an Israeli-based company that developed a navigation app gained popularity throughout the world.

There has been much ado made about how Facebook (NASDAQ: FB) may have lost out on a prime opportunity to get a foothold in the growing map and navigation space by not pursuing acquiring Waze. Preventing the dominant search engine giant Google from adding the company to its portfolio seems like it would have been an ideal strategy for Facebook. 

However, all may not be lost, as there are some players that long ago established themselves in the industry, and that makes them prime acquisition targets. They include Garmin (NASDAQ: GRMN) and TomTom, which were among the early leaders in the map space. However, since the onslaught of mobile devices that boast high-tech map apps, these devices have lost market share.  

At stake are billions of dollars in revenues anticipated as more businesses see the lucrativeness of advertising with mapping apps. Consider this: Opus Research estimated that mobile ads associated with maps made up about 25% of the roughly $2.5 billion spent on mobile ads last year.

So, while Facebook may have not moved on acquiring Waze, for whatever reason Garmin and TomTom are well positioned to make adequate additions to the Facebook lineup.

Garmin once considered the next Apple

During the early 1990s, portable navigation devices were all the rage. Mounted on vehicles’ dashboards, the devices quickly gained favor for the directionally-challenged. You may remember the devices, or you may even still rely on them to help navigate you to your destination.

During its heyday, Garmin was one of the fastest growing companies in the country. Some went so far as to call it the world’s next Apple because of its rising stock price. In 2007, the stock hit $120 a share, fueled by investors giddy over the company’s strong sales. That year, sales doubled to $1.2 billion.

And then something happened, and that something was the smartphone. The shift from GPS devices to smartphones with map and navigation apps contributed to Garmin’s sales plummeting. Its market cap plunged to less than $4 billion in 2008 and is now about $6.7 billion.

Not to be outdone, Garmin has adapted and is trying new ways to stay competitive. For example, last month it announced a new integrated and portable navigation device for MINI vehicles. Called the MINI Navigation Portable XL, the device is designed specifically for MINI models and can be dealer-installed with a customized mount that goes next to the instrument cluster for optimal visibility.

While Garmin’s move with MINI is commendable, it is too small (no pun intended) in terms of dramatically increasing the company’s revenues, yet alone increasing shareholder value. Garmin’s largest business segment is its automotive and mobile business, but it also derives revenue for devices built for its fitness, aviation and marine segments.

TomTom Rules Now?

Then there’s TomTom. The sale of Waze means TomTom is one of the last independent providers of digital maps that cover the globe, as pointed out by the Wall Street Journal last month. The daily finance newspaper noted that such companies are “scare and valuable” assets.

TomTom has also embarked on strategies to stay competitive. That includes creating a navigation app for Parrot, which is known for its wireless devices for mobile phones. It is listed on NYSE Euronext Paris (Eurolist B). It has developed an Android based mobile app, and it has partnered with TomTom on a new navigation app. Drivers with the app will get voice instructions via their car stereo.

Unlike other apps, TomTom notes that this app uses on-board maps, which are always accessible even without a network connection.

And like the old adage says, if you can’t beat them, join them. Last year, TomTom struck a licensing deal with Apple for its operating system.

However, there could be problems with Facebook, or anyone one else for that matter, in acquiring TomTom. That’s because the company’s four founders control 47% of the company and aren't eager to sell, according to the Wall Street Journal. 

Conclusion

Garmin and TomTom may be struggling in the wake of the smartphone. Google may have beaten Facebook to the punch in carving out more market share when it comes to ads and mapping services. However, a near perfect stage has been set for Facebook to acquire either one of them.

The social networking company has been under pressure to increase its ad revenues from shareholders who are still disgruntled about the stock not trading anywhere near the IPO’s $44 price.

According to eMarketer, mobile advertising spending grew 178% last year to about $4 billion. It attributed much of that growth to Facebook as well as a strong performance from Google. Spending is expected to rise a further 77.3% to $7.29 billion this year.

Buying Garmin or TomTom can better position Facebook in carving out more market share. It would also help it keep Google from eating its lunch as it did when it swooped in and bought Waze. Garmin or TomTom should rank high on Facebook’s target acquisition list.

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Tedra DeSue has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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