Consensus community valuation
$1.845
Average Intrinsic Value
4.1%
Overvalued by
Active Member Straws
#Risks
Added 5 months ago

These are just my on the ground observations, and I no longer hold an interest in Nearmap.

Around 6 months ago I was interviewed for a role at Nearmap. 

For a relatively new company, I was taken by the sheer extravagence of their Barrangaroo offices - prime water views in a very prestigious area - I questioned their best use of company resources for such lavish office accomodation

The interviewing manager had a very hard nosed focus on winning customer contracts and then renewing expiring contracts, but it was very clear that they were in a very high pressure selling situation.  They were looking for no-holds barred hunters with little regard for long term customer satisfaction - a key determinant of low churn rate

There was talk of holding out for customers (asking for discounts) by way of increasing future prices if they did not resign the and there (playing the scarcity game) - this might be fine if you are the only provider of such a service, but seemed quite antagonistic

The sales problem as outlined to me was "we sell expensive pictures", how do you go about doing that? There was little talk about the deeper product value and how clients can benefit - red flag

In terms of competitors, a colleague of mine has been doing a lot flying over Sydney and regions for a competitor (Eagleview) for about a year now and they are posing a threat that may not yet be factored in for Nearmap.  I'm not deeply in the know about their relative competitive differences, but on initial glance they are similar in offerings

Take what you may from my comments, but the sniff test failed me back then and I moved on to other opportunities.

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#FY20 Guidance change
Last edited 4 months ago

Nearmap has downgraded its FY20 ACV guidance from $116-120m to $102-110m -- a 10% reduction at the midpoints. On these numbers, ACV will be ~35% higher than FY19.

Management said in the conference call that statutory revenue for the first half would be around $46.4m, up 30% on first half 2019.

Performance has been impacted by a small number of larger customers.

In the US, one large client cancelled their contract as they are under a permanent court injunction. There were also two major churn/downgrade events due to a slowdown in mapping from the autonomous vehicle industry.

Nearmap also said it failed to close a significant partnership deal, supposedly because of the prospect's budget constraints (perhaps they went with a cheaper offering?)

In North America, incremental ACV grew by US$2,3m in the half, compared with US$4.8m in H1 2019.

In total, North Amwerican churn increased significantly from 6.1% to 20.6%

In Australia & NZ, incremental ACV grew at a slower rate than the previous corresponding period, increasing $3.1m vs $4.5m.

Churn in this region also increased, rising from 5.3% to 7.2%. This was due to "consolidated subscriptions, reductions in customer funding and Nearmap internal execution issues"

Nearmap said that, excluding some of these issues from major customers, the business was well positioned and "extremely positive on the medium and long term outlook". It said it was confident of growing ACV by 20%-40% year on year and that churn would remain below 10%.

Cash balance remains at $50, with cash burn will be much lower in the second half.

The domestic segment was "outgrowing the compettion significantly". 

All in all, not great news and raises some concern over the stickiness of the offering, market demand and pricing power. Could well be a mere "bump in the road" but given the valuation it wont likely take much of a slowdown to materially impact the share price -- at least in the short term.

You can listen to the CEO's briefing here at 9:30am Sydney time (recording should be available afterwards).

ASX announcement here

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#HY20 Results
Added 3 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 4 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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#Bull Case
Added 3 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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##Risk
Added 5 months ago

Hi all,  Please note that short interest in Nearmap is now up to 12%

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#ASX Announcements
Added 6 months ago

12 December 2019

Nearmap announces US acquisition of Roof Geometry Technology

 

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#DirectorPurchase
Added 3 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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#COVID-19 Update
Added a month 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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#COVID-19 Update
Added 2 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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#Bull Case
Added 6 months ago

https://mynewscrunch.com/enrapturing-stocks-nearmap-ltd-asx-nea/

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