I received a call recently from a financial analyst looking for information on the M2M space. We were talking about how profitable the growth is in this space, and it got me to thinking......
We all talk about the explosive growth in the world of M2M, but....is anyone making money now?
To get the pulse on how the M2M space is doing, I researched some of the latest reports from a variety of publicly traded companies (most companies in the M2M space are privately held, so it does limit the scope of our research).
Here are two reasons I selected the nine companies below:
1. Since these companies are all publicly traded, there is full visibility into their financial records. The information used was gathered directly from financial statements/press releases from the company themselves. I like to be accurate, so please let me know if I have made any errors.
2. Each company I chose, or at least, the vast majority, are earning revenue from areas directly related to M2M. Companies like GE, IBM and the cellular carriers do have significant reaches into this space but derive most of their income from non-M2M related sources.
In the end, I categorized the companies in to three categories:
Steady: These are companies who latest reports
show that their numbers were flat, or worse, essentially down
compared to the same time period the year before.
2. Wait and See: These are companies who appear to be doing better, but there are question marks around the company (whether it is due to a change in strategy or if the results were a bit mixed).
3. Firing on All Cylinders: These are companies that are substantially ahead of the same time period last year.
- Sales were down slightly in their first 2 fiscal quarters of 2012 vs. 2011.
- Net income per share was down from 11c to 8c over the same time period.
- Digi was close to rating as a Wait and See, as they are in the process of moving from a hardware-centric model to one that is more of a complete service offering. It is reasonable to think that they will see dividends from their recent efforts soon.
- Net income was virtually flat (after a 400K charge was removed) from Q1 2013 over the same time period in 2012.
- Gross margins fell by about 2%.
- Like Digi, Numerex almost made it into the Wait and See category, as they are continuing their shift to being more services centric. However, they have been at this transition for longer than Digi.
- Had a modest gain in top-line revenue in the first fiscal quarter of 2013.
- Did have a drop in EBITDA over the same time period.
- It will be interesting to see how satellite services maintain their pricing power, with the ever expanding cellular networks.
WAIT AND SEE
- Sierra posted a slight loss from its continuing operations in 2012, a loss that was much less than in 2011.
- After its recent decision to shed its lower margin AirCard business, it will take a few quarters to get a better understanding with regards to how this will improve margins as the company focuses exclusively on M2M.
- It is reasonable to assume that Sierra could move into the Firing on All Cylinders category before this year is out.
- Solid performance increase for the first 9 months of fiscal 2013 with big jumps in revenue, Gross profit and operating income. However, the company still posted a loss for this time period.
- Technology companies do require a lot of investment to grow, so it is likely that this company could see a dramatic gain in the coming years.
- Posted strong top-line gains for 2012 over 2011
- Profit for the same time period was flat, as the gross profit margin did fall slightly.
- With the proliferation of drilling activity brought on by activity in the shale space, Zedi should be a good bet to grow for a long time.
FIRING ON ALL CYLINDERS
- 2012 sales were up 17% over 2011.
- 2012 Gross Profit was up 13.4% over 2011.
- Earnings per share were close to double in 2012 over 2011.
- Might this make Telit a possible take-out target for some company looking to get into the M2M space.....like Texas Instruments?
- Dramatic jumps in all metrics in Fiscal 2013 over the previous years.
- Revenue was up 42M from 2012 to 2013, while earnings per share were up 8x.
- Margins were slightly better in 2013 over 2012, albeit not dramatically.
- Calamp continues to impress, and is positioning itself for a long successful run as it moves to increase its non-hardware revenue as a percentage of overall revenue.
- Dramatic jump in top-line revenue, margins and earnings in 1st quarter 2013 over the previous year.
- In a tightly contested area of the M2M market, these numbers are all the more impressive.
So, what does this all mean? Well, in the fast moving space of technology, it might not mean anything. Many companies can move from the top floor to the doghouse pretty quickly, and many companies are only one service offering/product away from greatness. As well, as this market grows, it will be important to watch if companies are able to grow profitably.
The one thing that did become obvious is that only one or two of these companies is growing at anywhere near what we all believe is the overall growth rate for this space. Are we overestimating the growth? I don’t think so.....I think it is more likely that many of the companies who are privately held are doing a lot of the services in the M2M space (which is often where a lot of the profit is) and the majority of the companies listed derive most of their revenue from hardware sales. This explains why most of these companies have expanded their services offering as of late.
As always, let Novotech know how we can help with your M2M needs, such as antenna selection. You can visit our web page @ www.novotech.com. As well, feel free to reach out to me directly ....larry(@)novotech.com. You can also follow us on Twitter (@NovotechM2M) and you can follow me personally as well (@LBNovotechM2M).