China's AutoNavi Maps Out an Initial Public Offering

China's AutoNavi Holdings, a digital mapping and navigation services company, has filed for an initial public offering, with the hope of raising as much as $100 million. The lead underwriter is Goldman Sachs (GS). AutoNavi also has a variety of top-notch venture investors that include Sequoia Capital China and Kleiner Perkins Caufield & Byers.

China is certainly an attractive market for a mapping company. Alongside increased economic growth and urbanization, a lot of money has been spent on infrastructure -- which means rapid changes to the road system. What's more, the auto industry is booming and smart phones are experiencing surges in demand.

Massive Database Key to AutoNavi's Thriving Business

At the core of AutoNavi is its massive digital mapping database. It covers roughly 2.8 million kilometers of roadway and over 12.5 million points of interest in China. There are also over 200 comprehensive road attributes, which include traffic rules, road grades, entries, exits and so on.

With this database, AutoNavi has built a thriving business in three categories. First, there is automotive navigation. This includes in-dash systems for over 100 car models, such as from Audi and BMW.

Next, AutoNavi has a strong offering of applications for the public sector. Often, these include sophisticated 3-D modelling and location-based systems.

Then there is the wireless business, which is distributed primarily through China Mobile (CHL). The company is the largest mobile provider in China.

All in all, these business segments are running nicely. From 2007 to 2009, revenues went from $29.7 million to $57.2 million. Net income last year came to $10.4 million.

Prospects of the Offering?

AutoNavi does face strong competitors, like Nokia (NOK) and TomTom. However, the company has the advantage of being focused on the Chinese market, which is fairly complicated.

More importantly, the growth for digital navigation services is likely to continue for some time. After all, China has spent $340.3 billion on roadway construction from 2006 to 2009. And last year, vehicle sales hit 13.6 million and the volume is expected to double by 2012. Obviously, this will mean an acceleration for in-dash navigation system.

At the same time, the growth in Internet usage in China will spur sales of its smart-phone applications. Already, the country has the largest number of mobile subscribers and Internet users. In fact, the number of GPS-enabled phones is expected to increase from 7.4 million in 2009 to 88.4 million by 2012.

Such numbers are staggering -- and should catch the attention of IPO investors looking for a hot growth play.