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Verizon Quietly Grows Its Connected-Vehicles Business

By Nicholas Rossolillo – Nov 18, 2016 at 5:20PM

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You may not think of Verizon as being at the forefront of the connected-vehicle and fleet-management movement, but perhaps it's time for tech investors to at least start paying attention to the telecom giant.

Image source: Verizon Communications.

Verizon Communications (VZ -0.07%), best known as "America's most reliable mobile network," has been undergoing a business transformation. Last year it was the big AOL headline purchase for $4.4 billion, and this year it was Yahoo! for $4.8 billion.

While those moves have captured the spotlight, Verizon has also been making other smaller purchases that have largely escaped notice. The company recently completed its acquisition of Fleetmatics, bringing its total number of purchases this year to eight.

Expanding its reach in business communications

Ireland-based Fleetmatics offers hardware and software for connected vehicles, especially for fleets of small- and mid-sized businesses. The company offers internet-based and GPS services that help fleet and mobile workforce operators see vehicle locations, fuel usage, speed, and mileage. Using the service can help businesses become more profitable by reducing costs and can help businesses scale up to increase revenue.

Verizon's new subsidiary is already a market leader in North America and is expanding into other locations as well, especially in Europe. As part of the press release announcing the deal, Fleetmatics CEO Jim Travers had this to say: "Verizon and Fleetmatics share a vision that the SaaS-based fleet management solution market is extraordinarily large, lightly penetrated, global, and fragmented, which can best be attacked together with a world class product offering and the largest distribution channel in the industry."

Simply put, Verizon hopes to steamroll the fleet and mobile workforce management industry with the Fleetmatics buyout. At the time the deal was completed, the acquired business was bringing over 737,000 subscribers and a workforce of 1,200.

Image source: Verizon Communications.

What Verizon paid and why

Verizon paid $2.4 billion for Fleetmatics, half the amount paid for each AOL and Yahoo!, but a hefty sum nonetheless. Fleetmatics owners received $60 in cash in lieu of their shares.

Over the summer, Verizon also quietly purchased California-based private fleet management company Telogis for an undisclosed amount. Verizon is combining both fleet management companies into its Telematics business, a service that already provided consumer vehicle infotainment and connection services. The division also consists of Hum by Verizon, a $10-per-month subscription that provides roadside assistance, a certified mechanic hotline, and consumer vehicle tracking.

Why did Verizon make the moves? The communications company has been in a slow process of transition from a telecommunications company to a business that has a hand in multiple communication outlets.

Wireless providers were at the forefront of providing connectivity for smartphones, which have become indispensable parts of our lives at work and at play. With connected vehicles becoming a rule rather than an exception, Verizon sees benefit in moving beyond just consumers and their smartphones and treating vehicles and transportation in much the same way: as a means of staying connected with the world and providing a boost to productivity.

What investors should consider

Verizon's connected-vehicle division and other Internet-of-Things business is still very small. Last quarter, revenue from Telematics and related endeavors was only a $217 million drop in the $30.9 billion bucket the company generated overall. However, the small segment did grow 24% year over year on a comparable basis, excluding the Telogis acquisition.

It will be worth noting this line item in subsequent quarters, as Verizon is yet to report with Fleetmatics fully incorporated into the fold. With two new buyouts now powering the company's connected vehicle and fleet management division, investors may have a new growth catalyst to cheer on.

Nicholas Rossolillo has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. 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.

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