The technology I want to tell you about today is one of my best investment ideas.
And not just because it saved my life.
I’m talking about “location-based services,” the technology that allows your smartphone to show where you are … or tell you where you need to go.
It’s a technology that has double-your-money profit potential because of all it can do. It can help you find the nearest retail sale, guide you to the seafood house where you have reservations, or get you to a hotel for a good night’s sleep.
It can also help you avoid costly navigation errors – and not just in a car.
Two summers ago, while sailing with my crew out on San Francisco Bay, an exceptionally heavy fog rolled in. We grabbed a smartphone, discovered we were off course, and traversed the dangerous Berkeley Reef – which would have ripped our keel right off had we not turned.
And the drama involving location-based-service technology doesn’t end there.
You see, this market has finally reached critical mass and is poised to skyrocket.
And I’ve identified the one company that’s so tapped into this surging mobile-economy market that its stock could double in less than three years.
All Hail the “Gadget Girl”
When it comes to location-based services (LBS), if I’m not thinking about my “Great Escape,” then I’m thinking about my wife – because she regularly uses a slew of “apps” that employ location technology.
That’s why I call her “Gadget Girl.”
In particular, she relies on a mobile app from Yelp Inc. (NYSE: YELP). A few months back, my older daughter was appearing in a drama contest a few towns over from where we live. As we made our way over, we had time to kill – and were very hungry – but had no idea where to stop and eat.
So “Gadget Girl” grabbed her phone, hit Yelp and told it to locate us. Then she said she wanted to find a place to eat. After we read the reviews, we ended up having a super lunch at a great little café that we would never have found on our own.
Yelp is our go-to mobile location app. We also use it to find hotels and stores when we’re traveling. The stock has done well over the last year, rising roughly 40%.
In the past we have also used a mobile app called “Find My Friends” to locate our kids and make sure they were in a safe neighborhood. (Parents love this app, teens not so much.)
My message here is this. LBS technology puts a heck of a lot of power right in the palm of your hand.
And that power is finally turning into meaningful revenue.
Admittedly, a number of investors have soured on location-service stocks because of premature expectations and several “false starts” in the marketplace itself.
But after those “false dawns,” researcher Juniper.com says the LBS market has finally reached critical mass.
And the projections are staggering.
Since 2008, the LBS market has grown fivefold. In terms of actual dollars, the forecasters say revenue will zoom from about $2.8 billion in 2010 to as much as $12.7 billion next year.
Advertisers are moving in quickly. The research firm eMarketer estimates that U.S. mobile ads total $2.6 billion. But driven by location-based ads, that figure is expected to roughly double to about $5 billion by the end of the decade.
Bear in mind, this is only the advertising portion. It doesn’t count what I call the “mobile GDP,” the total value of the products and services people actually buy based on location services and ads.
Known as mobile commerce, wireless shopping totaled nearly $6 billion in this year’s first quarter. Forrester Research says that figure could climb to $31 billion in just three years.
There’s a tangible foundation for all this growth.
And it all starts with the smartphone – the Cape Canaveral of mobile commerce.
The shift from conventional cellphones to their “smarter” counterparts is the launching pad for the explosive surge in mobile GDP.
Smartphones have specialized mobile operating systems that allow them to run applications. They also have at least some computing capabilities, such as writing and editing texts, and broadband access to the mobile Web.
The market research firm Nielsen Holdings estimates that smart phones are outselling standard handhelds by a factor of 2-to1. The market research firm ComScore adds that more than 115 million Americans already have smart phones.
Based on that and other market forecasts, analysts estimate total usage of smart phones in the U.S. will grow to roughly 225 million as early as the end of this decade.
If you add in “tablets” and other smart gadgets, it’s easy to understand why mobile devices are outselling PCs by a ratio of 5-to-1.
Businesses want to reel in all those mobile spenders. So they’ve launched an all-out blitz to make that happen.
Search giant Google says that hundreds of thousands of small businesses throughout the U.S. are starting to use location-based services as a way to attract new mobile shoppers.
Already, Google says, a stunning 94% of all smartphone users have searched for “local” information about commerce they’d like to conduct within a few miles of their current location.
And location-based services are kind of the high-tech middleman – the apps that allow consumers to find places to go.
For instance, Redfin.com is a popular real-estate site that has a great location-based app. You tell it your location and then you can find all the homes for sale within a set distance. It’ll even tell you which homes are open on Sunday for viewing.
Another LBS app, “Motorcycle and Scooter Parking,” lets people find spaces in urban centers.
Of course, location services can be a bane to traditional retailers. Shoppers will go to a local electronics store, find an item they want and then have their smartphone locate all the nearby stores that have that same item and how much it’s selling for.
Location-based mobile technology fits Rule No. 2 of my five-part strategy for building tech wealth: It’s clearly an unstoppable trend.
As Yelp’s stock price demonstrates, there’s clearly money to be made with direct investments in some of the LBS players.
But, whenever possible, I still favor the “picks-and-shovels” approach to investment opportunities like this one – and search for profits among the vendors that provide the products and services that unlock the real growth.
And with LBS technology, I have the perfect pick-and-shovel profit play.
I’m talking about InvenSense Inc. (NYSE: INVN), a fast-growing Silicon Valley firm that ranks as the leading provider of the motion-sensing chips that makes LBS technology possible.
InvenSense has had years to perfect this technology…
The firm made a big splash in the market back in 2006 because it supplied the motion chips inside the original Nintendo Wii. Being able to accurately determine movement of a gaming system’s handheld device is a central element of virtual-reality programs. To determine movement accurately, the device must know exactly where it is in a 3D space.
So, when it came to adding motion sensing – and location services – to smartphones, InvenSense was already in expert in this field.
No matter what brand of smartphone you buy, what operating system it uses or which carrier supplies your service, every single smartphone sold today comes embedded with a GPS microchip that knows exactly where your phone is at all times.
Tracking is set to become a big area as well. GPS does well outdoors but has a harder time finding a location inside a large building. InvenSense has developed a generation of processors that greatly improve the quality of tracking, particularly when the phone loses its GPS link.
InvenSense also says its technology solves a major issue with location services – power management. Many apps contain a feature that automatically enables location services. So, your phone is “talking” to several software services at the same time.
Sending and receiving so many signals at once can drain battery life. But InvenSense has developed a way to provide accurate locations without continuous GPS locking.
However, the firm doesn’t provide estimates of how long it can extend battery life because that depends largely on the number and type of apps used. But in the past just by turning off a few location services on my iPhone I’ve added several hours of battery life.
InvenSense also supplies another technology critical for the success of today’s smart phones – gyroscopes.
These tiny devices allow you to turn your smart phone upside down and have the screen turn with it. Shipments of smartphone gyroscopes could grow to 358 million units next year, up from 49 million back in 2010, InvenSense says.
Of course, today’s wireless phones aren’t the only “smart” devices that help InvenSense sell its products. Tablet computers, smart TVs, game consoles, navigation devices and digital cameras each also need accurate motion sensing.
And mobile commerce isn’t the only use that will drive demand. Industry, exploration, health monitoring, and law enforcement will create demand, as well.
Add it all up and InvenSense has a very bright future ahead…
After studying the firm’s markets and its financials, I’m forecasting it will increase earnings at an average annual rate of 25% over the next five years. That means the stock could very well double in less than three.
With a market cap of $1.3 billion, this small-cap stock trades at about $15.50 a share. INVN has a profit margin of 24% and grew its most recent quarterly earnings by 130%. The firm has more than $175 million cash on hand and no debt.
InvenSense is a great strategic tech play. The firm is focused on a sector that is shifting from red-hot to white-hot – and that will continue to see growth for many years to come.
This is one of the great companies I have in mind when I say that the road to wealth is paved by tech.
But this is one investing lesson that I learned in the water.
[Editor’s Note: Your feedback is very important. As always, I welcome your comments, questions and suggestions. Post a comment below … I look forward to hearing from you.]