Will TeleNav be a buyer or a seller?

Contact: Ben Kolada

TeleNav’s revenue is expected to decline significantly in 2013, but the company is making attempts to expand into growth markets, as evidenced by its recent acquisition of local mobile advertising startup ThinkNear. With its shares continuously battered on the public market, could TeleNav spurn public scrutiny and seek a private equity buyer? Its mountain of cash could enable the company to go in either direction – buyer or seller.

TeleNav stumbled onto the Nasdaq in May 2010. After repeatedly issuing guidance below analysts’ estimates, the company’s shares are currently trading nearly one-third below their IPO price. Revenue for its fiscal 2013, which ends in June, is expected to decline 13% to $190m. The company’s revenue primarily comes from providing GPS navigation software to wireless carriers, though it also serves the automotive vertical and enterprises, and recently began targeting the local advertising market.

Although TeleNav is rarely an acquirer, its $22.5m ThinkNear pickup could be the beginning of a buying spree meant to propel growth in its local mobile advertising business. The mobile advertising market is in hyper-growth mode, and TeleNav has an audience of 34 million users accessing its services that it hasn’t yet materially targeted for advertising purposes.

Meanwhile, the debt-free company is sitting on nearly $200m of cash and short-term investments that it could use to fuel its M&A machine and inorganically grow this business segment, which represents less than 10% of its fiscal 2012 revenue.

Conversely, though, TeleNav’s treasury could attract buyout bidders. Its market value is currently about $260m, but its cash and short-term investments reduce its enterprise value to just about $60m. A lofty 30% per-share premium would give the company an enterprise value of less than half projected fiscal 2013 revenue. However, we expect that if the company is taken private, its newfound parent would continue to invest in its mobile advertising business because of that market’s growth potential. TeleNav reports fiscal 2013 first-quarter results after the bell tomorrow.

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