Digital mapper Navteq (NYSE:NVT) reports Q4 and full-year 2006 earnings results tomorrow. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Seventeen analysts follow Navteq, giving the Motley Fool Stock Advisor recommendation nine buy ratings, seven holds, and a sell.
  • Revenues. On average, they're looking for 20% quarterly sales growth tomorrow, to $174.7 million.
  • Earnings. Profits are predicted to rise 48% to $0.43 per share.

What management says:
In early December, Navteq announced its purchase of The Map Network (TMN), a small, privately held company, for $37.5 million cash. The press release noted that TMN counted the 2004 Republican and Democratic National Conventions, not to mention Super Bowls XL and XLI, among its clients. So presumably, TMN has some revenues, and perhaps even some profits -- but the press release remained silent on specifics. Thus, it's impossible to say whether Navteq paid a good price, valuation-wise.

More (actually, much more) information is available on Navteq's $179 million deal to acquire "personalized traffic information" provider Traffic.com (NASDAQ:TRFC) in November. That press release put the target's 2005 revenue at $43.3 million. But because the firm is public, we also know (thank you, Capital IQ) that Traffic.com booked $49.4 million in the last four quarters, up from $43.5 million one year earlier. It is, however, wildly unprofitable, losing $27 million under GAAP accounting over the last four quarters, and burning $32.7 million in cash.

Needless to say, the Traffic.com acquisition will be dilutive to Navteq's earnings (subtracting somewhere between $0.11 and $0.17 per share in 2007, the company says). The smaller TMN deal will also be "slightly dilutive to earnings per share in 2007."

What management does:
Marrying this information with the table below, I expect we'll be seeing continued erosion of Navteq's gross margin going forward. Operating margins, which have been burdened by 20% growth in selling, general, and administrative expenses (about 650 basis points faster than sales growth) over the last couple of quarters, will likewise continue to decline. And the net will certainly take a hit.

Margins

6/05

9/05

12/05

4/06

7/06

10/06

Gross

52.9%

52.8%

55.1%

54.3%

54.1%

54.3%

Operating

27.0%

27.3%

27.2%

25.7%

24.7%

25.1%

Net

16.0%

33.8%

34.4%

33.1%

32.0%

17.3%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
For all that, Fool co-founder and Stock Advisor co-analyst David Gardner remains confident in the company. Far from being concerned over the absorption of unprofitable Traffic.com, David said in his December semiannual portfolio review that the Traffic.com deal "will cement [Navteq's] position in providing real-time traffic data to users -- something I expect to drive future GPS use ... Navteq is dominant in a highly relevant space, and I feel just as good about it now as I did when I tapped it."

And why, exactly, did David "tap it"? You can read his entire write-up -- and those for the rest of his portfolio, which is currently beating the market by a 68% to 31% margin -- when you claim a free one-month subscription to Stock Advisor. Click here to get started.

Customers:

  • Autodesk (NASDAQ:ADSK)
  • DaimlerChrysler
  • Ford (NYSE:F)
  • Garmin (NASDAQ:GRMN)
  • GM (NYSE:GM)
  • Microsoft (NASDAQ:MSFT)

Fool contributor Rich Smith does not own shares of any company named above. Garmin is a Stock Advisor pick, and Microsoft is an Inside Value selection. The Fool's disclosure policy always passes on the left and uses its blinker.