Will Verizon's (VZ) Diversification Into Telematics Pay-off?

Verizon Communications Inc. (NYSE:VZ) recently completed the acquisition of Movildata Internacional, a Spain-based leading provider of commercial fleet management solutions. However, the financial terms of the deal are yet to be disclosed. In addition to Spain, Movildata will help Verizon to expand its telematics footprint in Portugal and Italy.

Notably, the U.S. telecom behemoth already has a strong foothold in the telematics space in several European countries like the United Kingdom, Ireland, the Netherlands, Germany, France and Poland. Importantly, Spain is the second largest market for commercial vehicles in Western Europe, with significantly underpenetrated fleet management solutions providers.

Verizon is an active player in the fleet management and telematics business through its Verizon Telematics subsidiary, which has operations in 40 countries. In October 2017, Scotiabank Equity Research opined that the company is set to benefit from its diversification into the telematics segment 2018 onward.

The connected vehicle market is gradually developing into a major growth area for large telecom and technology firms. Apart from Verizon, U.S. telecom giant AT&T Inc. (NYSE:T) has a strong presence in this field. The connected vehicle market will get a major boost from the next generation of wireless breakthrough technology, 5G.

In 2016, Verizon completed two major acquisitions in this segment. First, it purchased privately held Telogis Inc., a California-based developer of cloud-based solutions for mobile workforces, specifically telematics, compliance and navigation software. The financial terms of the deal were not disclosed.

Notably, Telogis' products and services are used and distributed in more than 100 countries. The company boasts powerful clientele comprising names such as General Motors Co. (NYSE:GM) , Ford Motor Co. (NYSE:F) and Volvo to name a few. Telogis’ state-of-the-art software platform will significantly enhance Verizon Telematics’ distribution relationship business for connected vehicles and mobile enterprise management.

Second, the company acquired Fleetmatics Group plc for $2.4 billion. Fleetmatics is a market leader in North America which has a diversified portfolio comprising a wide range of compelling SaaS-based products and solutions for small-and medium-sized businesses. Fleetmatics provided more than 42,000 customers to Verizon, approximately 826,000 subscribers and a broad portfolio of products focusing on solving the critical problems of mobile workforces.

Verizon is also planning to deploy small cells – both low power and high power – using the 3.5 GHz band. The company has long been involved in small cell densification and expansion of its dark fiber footprint strategy in relation to upcoming 5G wireless technology trials and launch.

Price Performance of Verizon

Verizon’s shares have increased 10.01%, outperforming the industry’s gain of 5.36% over the past 90 days. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>