Having lived in Southern California all my life, I know all about the aggravation of traffic. If you live in a major metropolitan area, chances are you do, too. The bad news is that you shouldn't expect things to get much better -- in Southern California or anywhere else. We'd actually need 5,000 more lane miles of roadway to keep traffic congestion from increasing. Yes, literally.
We may not like that news, but Traffic.com probably does. The company, which provides real-time traffic information for 24 of America's largest metropolitan areas, recently filed for an IPO.
Besides using governmental sensor networks, Traffic.com has its own sensors to measure real-time traffic activity on a total of roughly 23,000 lane miles of roadway. With additional help from video feeds, data from aircraft and mobile units, and reports from drivers, it efficiently sifts through accident, construction, and congestion information. It can even factor in special events such as parades, sporting events, and conventions.
Traffic.com then delivers its information across multiple platforms, including television, radio, the Net, and wireless devices. It even has arrangements with Acura and Cadillac to provide traffic information for in-car navigation.
The company generates its revenue primarily through syndication deals similar to those employed by radio and TV. In other words, it offers traffic information to media outlets in exchange for the right to sell advertising time. Its customers include such biggies as Disney (NYSE:DIS), XM Satellite Radio (NASDAQ:XMSR), and Viacom (NYSE:VIA).
That revenue stream, though, may limit the appeal of this company when it does go public. Ad-based revenues, after all, are highly susceptible to the changes in the economy. And even though Traffic.com has a well-developed technology platform, it's not without competition. Other big players in the market include Westwood One and Clear Channel Communications. These and any new competitors that emerge could have a significant influence on ad prices and the cost of ad space. To ensure expansion of its revenue stream, then, Traffic.com will need to keep investing in technology to stay ahead of the curve, as it were. But even that will work only if the company is able to scale its investments.
There's one other big problem for Traffic.com: It's not exactly a big moneymaker. For the first six months of this year, revenues were $22.7 million and losses were $11.3 million.
It appears that Wall Street is testing whether investors are willing to take on riskier IPOs. The upcoming iRobot IPO appears to be a case in point, as well as the expected IPO on Vonage. But Traffic.com makes for an especially high-risk offering. It almost seems more like a venture capital deal than an IPO. But if such a company can pull off a successful IPO, no doubt we will see other early-stage companies come to market afterward. Stay tuned.
Fool contributor Tom Taulli does not own shares of companies mentioned in this article.
