TeleNav Warns That Revenues From Its Largest Customer Sprint Will Fall

White label turn-by-turn navigation provider TeleNav (NSDQ: TNAV) is warning investors today that it has finalized contract negotiations with Sprint (NYSE: S), and as a result, will record fewer revenues on a monthly basis going forward. However, the new contract opens the door to collecting fees from other more nascent sources, such as mobile advertising, commerce, premium services and enterprise location-based services.

The change to Sprint’s contract is at issue in several shareholder lawsuits, which accuse the company of making false and misleading statements in connection with its IPO in May. The complaints charge that TeleNav did not disclose that Sprint was not willing to continue with the same contract terms beyond 2010. The company’s stock fell 7 cents, or 1.36 percent, to close at $5.06 a share. In after hours trading, the stock regained ground jumping 34 cents, or 6.72 percent, to $5.40 a share.

TeleNav said today that as a result of the negotiations, revenues coming directly from its largest customer will be less going forward. “Our monthly revenue for bundled navigation services will decline as compared to recent months,” said Douglas Miller, TeleNav’s CFO. However, he’s optimistic they can be replaced through new services. He continued: “We will benefit from a minimum guaranteed revenue stream with our largest customer as well as the ability to further increase our user base and future revenue growth potential from sources such as mobile advertising, mobile commerce, premium services and enterprise LBS.”

TeleNav’s ability to negotiate a new contract with Sprint was clearly hampered by recent events. Navigation has nearly become a commodity with Google (NSDQ: GOOG), Nokia (NYSE: NOK) and Microsoft (NSDQ: MSFT) giving away the services for free. While TeleNav’s contract with Sprint has been extended from the end of 2011 to the end of 2012, but terms are less generous. TeleNav will collect fixed revenues on an annual basis, rather than revenues based on the number of users. TeleNav did gain some benefits. Over time, the Sprint-branded service will transition over to the TeleNav name, and TeleNav will also be able to serve Sprint’s prepaid customer base.

TeleNav also renegotiated with map provider TeleAtlas, and will now pay fees to TeleAtlas based on a percentage of fees collected from Sprint for basic navigation services and from mobile advertising and mobile commerce revenue rather than the previous arrangement based on monthly fees per user or per transaction fees.

Last week, TeleNav unveiled its advertising platform, which integrates location-based ads into its turn-by-turn navigation service much like Google integrates text ads in a search result. The company reports that click-thru rates total 3.8 percent, and that 24 percent of people who click on an ad, drive to the location.

The company said its business outlook for the fiscal first quarter, ending Sept. 30, remains unchanged. It expects net income to total $10 million on revenues of about $50 million. For the full year 2011, the company expects net income of $23 million to 25 million on revenues of $180 million to $185 million.