Nearmap Limited (ASX: NEA) was only included in the S&P/ASX 200 Index on 24 April 2019, when it replaced MYOB Group Limited (ASX: MYO). The stock has experienced a momentous rise in share price over the recent past, climbing 622% in 2 years to sit at $3.68 at the time of writing. This strong performance is continuing in 2019 and as a result it can now be described as the 2019 best performing stock in the S&P/ASX 200.
The company
Nearmap describes itself as an innovative location intelligence company capturing a rich data set about the real world, providing high value insights to a diverse range of businesses and government organisations.
Bears of Nearmap argue that there are much larger companies that have the ability to enter the market. The most notable of these companies is Alphabet, Inc (NASDAQ: GOOGL) and its product Google Maps. With over 1 billion monthly active users this would seem to be a genuine threat, however this leads back to one of Nearmaps competitive advantages – the quality of its imagery and patented technology.
The company states that using its own patented camera systems and processing software, Nearmap captures wide-scale urban areas in Australia, New Zealand, and the US multiple times each year. This fresh content, together with a range of analytics and tools, is instantly available in the cloud via web app or API integration. This location intelligence gives Nearmap great optionality and potential revenue streams.
The numbers
Nearmap reported half-year earnings in February including 46% year-on-year revenue growth and a net loss after tax of $1.97 million, representing a 70% reduction. The company offers subscriptions and pleasingly saw reduced churn from 9% to 6%.
Another key metric was the reported 123% increase in total subscriber lifetime value (LTV), to $1.07 billion. LTV is calculated by multiplying the annualised contract value (ACV) of Nearmaps portfolio by its gross profit margin and dividing it by group churn percentage. If ACV and gross profit margins are rising while churn is falling there is a multiplier effect, expanding compound growth in LTV.
Foolish bottom line
Nearmap has great economics and is partially protected by its patents. This should help the company succeed over the long term, however the recent rapid rise in share price means that there are lofty expectations built into today's share price.
If the Nearmap valuation is a bit frothy for you, try these 5 companies trading at cheap valuations that all look to be good bets for your investment dollars right now.
