Nearmap Ltd soars 25% on market update: Should you buy?

Shares in aerial imaging and analytic provider Nearmap Ltd (ASX: NEA) skyrocketed 25% to $0.50 this morning after the company released a positive quarterly update.

Source:Nearmap presentation

Source: Nearmap presentation

Here are the highlights:

  • Accelerating growth in Australia and the US, with a 12% rise in sales quarter-on-quarter
  • Australian subscription revenue is up 32% to $7.8 million for the 3 months to 31 March 2016 ($5.9 million in prior corresponding period)
  • Demonstrating scalability potential for the first time, with Australian sales and marketing cost base roughly in line with the first half of 2016
  • US cost base also in line with previous outlays
  • US population coverage increased from 53% to 57%
  • First HyperCamera2 flights in US and Australia, extending company’s technological capabilities

So What? 

Nearmap didn’t provide cash flow information, but today’s update goes to show that the recent expenditure in the US has not been in vain, while the key Australian operations continue to grow rapidly. In the last half, Nearmap spent approximately $3.7 million on ‘plant and equipment’ and ‘development costs’, much of which likely went to the US operations.  Yet, with company costs remaining fixed while revenues scale up, it appears that Nearmap is one big step closer to achieving profitability.

At the most recent half-year report, Nearmap saw a cash outflow of $3 million, and had $14.4 million remaining in the bank. At that rate, Nearmap would appear to have around 2 years of operation remaining, which is ample time for the company to transition to profitability. Better yet, growth appears to be accelerating as the company penetrates its target markets further and up-sells existing clients.

With its coverage of the US growing, Nearmap is really only just getting started in that market – especially considering that it only implemented its pay-wall (clients must pay for its services) in December last year. The company has a fair way to go to justify the money it has spent in the region, but today’s update is a solid start. Despite today’s rise, shares don’t appear particularly expensive, and I bought my first parcel of Nearmap at $0.56 some 10 months ago.

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Motley Fool contributor Sean O'Neill owns shares of Nearmap Ltd.. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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