The Nearmap Ltd (ASX: NEA) share price has taken off in 2019 with the company doubling its market capitalization and earning a place on the ASX 200. A strong half year report and success in the US has the market optimistic about the future of Nearmap.
Who they are
Nearmap is an aerial imagery company that has operations in Australia, New Zealand and the US. Regarded by analysts as best in its class, Nearmap provides digital images from sophisticated cameras mounted on light aircraft. Images are taken from different angles and combined to create high-resolution landscapes which are stored in an online library.
Nearmap serves as a powerful project management tool and reduces the time required for site inspections and planning. The high-resolution images are adequate for commercial purposes, servicing government agencies, surveying, construction and insurance companies. Unlike its competitors, Nearmap offer their imaging services on a subscription basis rather than one-off contracts to ensure scalability and growth in the future.
Strong half year earnings
Earlier this year Nearmap reported impressive half-year earnings which indicated healthy growth across the board. Highlights of the report included a 46% increase in revenue of $36.3 million and healthy EBITDA of $8.1 million. Despite Nearmap reporting a net loss of $1.97 million, down 70% from the year prior, the business is debt free with positive operating cash flow.
Nearmap considers annualised contract value (ACV) a key metric for customer retention and growth. ACV for the half year grew 44% to $78.3 million indicating strong future revenues increasing operating leverage and the prospect of scalability. ACV in the US more than doubled from the previous year to $24.6 million, whilst Australian ACV grew to $53.3 million.
Global growth and expansion
Nearmap’s improved performance in the US provided the market with great optimism over the company’s future growth and profitability prospects. Nearmap plans to continue expanding its US presence in the near future by expanding operations into more jurisdictions and focusing heavily on sales and marketing to gain market awareness.
The company estimates that it has only penetrated 1% of the US market, which it forecasts to be worth approximately $2 billion by 2025. In addition, Nearmap announced intentions to expand into Canada in 2019 estimating a potential market value of $400 million. Nearmap also plans to expand its products and content offering and reaffirmed guidance for FY2019.
Recently Morgan Stanley continued their bullish outlook on Nearmap by issuing a $4.20 share price target. Analysts cited Nearmap’s strong performance in the US as an indication of future performance as the company expands into Canada. Although a price target increase is not enough to base an investment decision on, it indicates where sentiment lies. With its recent inclusion into the ASX200 Nearmap’s share price could still have strong momentum in the short term.
Nearmap’s Australian business is strong and continued expansion overseas has great potential for growth. Currently the Nearmap market capitalisation is valued at 19 times revenue which is a little expensive. In my opinion, it would be prudent to wait for a substantial pullback before buying shares in Nearmap.
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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. 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 Scott Phillips.