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Nearmap shares are down 40% – is it time to buy?

Shares in Nearmap Ltd (ASX: NEA) are down 40% to $2.50 from highs of $4.23 in June this year. The former market darling has experienced a rough second half to 2019 as investors reassess valuations, post results season. 

The aerial imagery provider was punished by investors for failing to meet consensus estimates in its FY19 results. The Nearmap share price dived when the business reported losses of $14.9 million after tax for FY19, up 35% on an $11 million loss the previous year. The share price fell to $2.84 on 21 August from $3.14 on 20 August, a loss of nearly 10%.

Nearmap did report a 45% increase in statutory revenue to $77.6 million driven by expansion in annualised contract value, which was up 36% to $90.2 million. The cost of revenue, however, was up by 113% to $22.2 million while operating expenses were up 29% to $66.6 million. 

The global aerial imagery market is expected to grow to US$10.1 billion in 2020. Nearmap provides high resolution aerial imagery of buildings and infrastructure complemented by artificial intelligence, which can analyse images to provide information such as the number of swimming pools in the image. 

Nearmap has been focused on growing its presence in the US, targeting North American sales and marketing Initiatives. A second North American sales office was launched in FY19 while the first Canadian capture program was completed, covering 64% of the population. 

North America now contributes more than 30% of annualised contract value, contributing $30.2 million in FY19, up from $25 million the previous year. Average revenue per subscription was $22.7 million for the North American region, compared to $21.2 million the previous year. This compares favourably with Australia and New Zealand where average revenue per subscription was $6.9 million, up from $6.5 million in FY18. 

Within 5–7 years Nearmap intends to be the dominant global player in the sector, so worldwide expansion is on the cards. As Chief Executive Rob Newman told the Australian Financial Review, “we’ll be the no. 1 in this industry globally, so that means we’ll also be expanding into Europe and Asia.”

Foolish takeaway

Nearmap is a growth stock, which means investors may have to pay more for potential increases in earnings. The flip side is uncertainty – when estimates are missed, share prices can be volatile. Still, if Nearmap can pull off its plan for global domination, current prices will no doubt look cheap. 

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Motley Fool contributor Kate O'Brien 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.

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