Friday, November 19, 2010

What would Buffett say for Garmin's future?

A very interesting article states that the econofinancial future of Garmin may be predicted, if we apply the Buffett's stock-picking strategy. Some of the criteria that are stated in the article and are fulfilled by Garmin are given below:
  1. Market Capitalization should be at least $250M (for Garmin is $5.7B)
  2. Current Ratio should be at least 1.5 (for Garmin is 4.2)
  3. EPS for the latest annual period should be above the EPS in the prior year and 5 years ago
  4. Long-term debt must not be higher than 10% of working capital. This is equivalent to a low Quick Ratio, and for Garmin this ratio is close to 3. 
In the article, some of the criteria of Buffett's strategy are not fulifilled though. But the aferomentioned criteria that are fulfilled, show that Garmin has potential to survive and be a great stock. What is left for Garmin is to change strategy and be able to qualify as a Buffett stock!
For your information, the portfolio of Warren Buffett is given here.

What can Garmin do to survive?

Can Garmin survive? There are some things that they have already done, some things the competitors have already done, but most importantly there are things that can (and should) be done.

  • First of all the Garmin GPS device is preinstalled in cars (they have done something close to that with BMW)
  • They should adopt the Ad-supported model (maybe through partnering with a media agency like Google or Facebook). ONStar has Facebook installed and one can upload his/her status update from their car (voice based).
Our concrete proposal for Garmin to survive deals with:
  •  Adopting the App-Maker Strategy
    •  Develop Garmin-branded app for mobile phone platforms
    • Adopt the freemium pricing model with offering free apps with basic maps or paid apps with a wider map selection
    • Distribute through all major mobile phone platforms
  • Competing with OnStar
    • Garmin should become a wholesale Location Based Services (LBS) provider
    • They should provide navigation aid
    • They should connect to the car's data system and therefore to the driver's cellphone
    •  Adopt Search/Concierge support
In other words, Garmin should be sold as a bundle (with the car) and get revenues from the advertisers. A potential advantage is that the resale value of the car is increased due to online monitoring and therefore the value of the brand is increased as well !

  • Adopting the Ad-model
    • CPC/CPM/CPA base
    • Quality score, based on CTR and distance
    • Targeting based on proximity and destination
    • Bidding basis
    • Ad-formats: text - images - 3D images

Is Garmin Dead?

Everybody knows Garmin, and everybody knows that Garmin used to be the "King" in location based services. But what is happening now? And most importantly: What is going to happen in the near future?
Find here a very interesting article that is trying to answer such questions.