Consensus community valuation
$2.31
Average Intrinsic Value
3.6%
Overvalued by
Active Member Straws
#HY20 Results
Added 6 months ago

A mixed bag for Nearmap. Growth continued, but it's slowing..

Group ACV rose 23% from the previous first half to $96.6m, but increased by just 7% in the 6 months to Dec 31.

It's normal to expect the percentage growth rate to slow over time as it grows each year from a larger base, but the half on half incremental add to ACV was just $6.4m in this latest half, compared to ~$12m for each of the previous 3 halves.

Revenue grew 31% over the previous 12 months, but here too you can see a slow down in incremental growth. In fact, the incremental increase in statutory revenue was less than the 2nd half of FY18.

The number of subscriptions rose 8% for the year, but just 2.9% compared to the preceeding half.

So certainly a slowdown in momentum.

There was a massive lift in operating costs, too, which increased 61% due to investments in growth and accelerated amortisation of capture costs.

As previously disclosed, the loss of a few large enterpise clients (see my previous Straw) saw the churn rate more than double; from 5.5% to 11.5%.

In terms of the good news, the Average revenue per client increased, and the US appears to going well outside of the large enterprise market.

The company has just shy of $50m in the bank, no debt.

So, what's the verdict?

The positive interpretation:  Nearmap has made a huge investment in sales & marketing and development, which isnt unreasonable given the market opportunity and decent traction in the large US market. Although that's blown out the loss, the business is well funded and should help reinvigorate growth.

The issues in North America may not indicate a structural shift in the competitive and economic environment -- such things just hapen in business. Treating the client loss as a one off, the underlying business appears to be growing well.

The negative interpretation: A significant slowdown in momentum, coupled with a massive rise in costs and reduced gross margins. The business could be facing increased competitive threats, and may not see a commensurate return on its growth investments.

Overall, there's a very decent business here, but the market's prior growth assumptions may have been too optimistic, and the business isnt scaling as well as initially hoped.

Would like to own, but at a price that better reflects a reasonable growth outlook and has a decent margin of safety. 

ASX Results presentation here 

 

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#Bear Case
Added 6 months ago

Livewire Markets' 'Buy, Hold, Sell' - Two fundies both rating NEA as a sell even at its current share price due to:

  • Sustainability of spending to grow marketshare in the USA
  • Concerns about growing competition from other players and the spectre of a big player, like Google, entering the space

Jun Bei Liu from Tribeca Investment Partners makes a couple of interesting points when she says that the quality of the product is probably worth a SP of ~$1, and that the company is priced as if it doesn't have any competitors but it does.

(2:33) https://youtu.be/1VHsVRfuANo

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#May Trading Update
Last edited 2 months ago

A great update from nearmap today.

Key points:

  • Annualised Contract Value (ACV) now exceeds $102m. Passing the lower bound of earlier guidance from February. (that's at a FX rate of 0.7 AUD-USD, but at the current rate of 0.66 ACV is $104m)
  • FY20 ACV now expected to be between $103-107m (prior range was $102-110)
  • New AI functonality to be launched on June 1
  • Company on track to be cash flow breakeven by June 30
  • Cash balance expected to be $32-35m at and of year
  • Despite the impact of COVID-19, Nearmap has continued to grow its portfolio month on month
  • Churn has reduced to 10% from 11.5%

Glad i added it to my Strawman portfolio last month -- just wish i'd bought more! :)

You can read the ASX announcement here

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#Bull Case
Added 5 months ago

From Lakehouse Capital's February newsletter (led by Joe Magyer). TLDR - They still like the business and added to their position on the selloff.

 

Nearmap’s disappointing downgradeto full year guidance in late January left little room for surprise in the company’s half year results. Annualised contract value of subscriptions grew 23% to $96.6 million, a material slow down from the 36% growth delivered in fiscal 2019. Meanwhile the proportion of multi-year deals increased to 42% from 36% a year earlier providing improved visibility over future revenue.Despite the recent stumble, Nearmap’s business fundamentals remain attractive. The company is applying a very data-driven approach to a large addressable market, actively enhancing the product with more and fresher content, as well as additional features and tools. The addition of 3D imagery, artificial intelligence and roof geometry should help to establish new use cases and drive average revenue per subscription higher across the business.Digging deeper into historical churn rates and the specifics of recent customer losses reinforced our view towards the half being an outlier. Nearmap’s fundamentals, increased mix of recurring revenue and management’s more conservative approach to revised full-year guidance gave us the confidence to top up. We continue to like the business’ prospects and expect the $49.3 million net cash balance will see it through to breakeven.

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#COVID-19 Update
Added 4 months ago

Nearmap has provided another trading update. Key pionts:

  • Claims it has seen no material impact on trading conditions
  • It is however seeking to reduce operating and capital costs by up to 30% 
    • including a 25% pay cut for board and CEO and 20% cut for everyone else
    • Reducing heacount by 10%
  • Expects to be cash flow breakeven by the end of FY20

You can see the full ASX announcement here

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#DirectorPurchase
Added 5 months ago

Susan Klose (N/E Director) bought 100,000 shares at $1.84 / share yesterday - always a good sign of confidence when a director splashes out!

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#Risks
Added 2 months ago

Nearmap seems to be failing to deliver from my perspective. There's huge amount of promise and discussion around the potential for AI to enhance services and product offering yet it doesn't appear to be eventuating. 

Digital Agricultural Services (digitalagricultureservices.com) is doing the ground breaking technological work I'd expect NEA to be pushing into... but they aren't. I honestly believe that as time marches on NEA will have more competitors and aerial mapping will have reduced barriers to entry. The winners will be the companies that can provide the insights from the photographs and information, not the photographers themselves. 

The bearish view on the business itself is supported by repeated earnings downgrades and negative results. 

Negativity aside the business has reduced churn, is proving there is growth in the market, and could breakeven soon. Long term negative view, short-mid term is a positive or neutral view. A stock with the chance to temporarily run hot with the right earnings result. 

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#COVID-19 Update
Added 4 months ago

Nearmap has provided an update in light of the coronavirus pandemic.

No detail was provided in terms of the impact to sales experienced or expected, with the company only saying that it's offering helped facilitate remote working and that it was well placed to endure any impact due to its near $50m in cash.

You can read the full update here

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