Since the beginning of the year, the Nearmap Ltd (ASX: NEA) share price has risen 75% to sit around $2.60. However, this is far lower than its $4.29 peak in June when investors scrambled to get their hands on the aerial imaging company.
Nearmap offers businesses instant access to high resolution aerial imagery, city-scale 3D datasets, and integrated geospatial tools. The company currently operates in Australia, New Zealand, North America (NA) and most recently has expanded into Canada following the success of its North American expansion 5 years ago.
The expansion into North America proved the scalability of Nearmap's business model as the annualised contract value (ACV) for FY19 was 36% above that of FY18. There's a lot to love about this number, as not only are sales increasing but so is the gross margin as more customers remain subscribed. This is shown by the decrease in the churn rate, which is the value of subscriptions not renewed offset by the value of recovered subscriptions previously churned. Roughly speaking, a deceasing churn means less people are cancelling subscriptions, which increases margins.
So where to next?
Managing Director and CEO Rob Newman appears to have his eyes set on the rest of the developed world. In the company's recent annual report, he stated:
Nearmap is uniquely positioned to be the global leader in the location intelligence market derived from aerial imagery. Our scalable subscription business model, clear technology leadership and world class team have put us in this strong position.
This makes sense, as many of the markets not yet entered are far larger than those here in Australia and New Zealand. Larger denser cities may increase the growth rates since more businesses (customers) operate in a denser zone. In fact, North American revenues in the sixth year of operations were more than double those generated in Australia in the equivalent year and are currently growing at a faster rate, as shown by the below chart.
Source: Nearmap AGM Presentation
Looking at the total addressable market globally, we can get a feel of how big the pie is that Nearmap is trying to consume. Currently the global aerial imagery market is estimated to grow to US$10.1 billion by 2020. This means with Nearmap's current reported revenue it is sitting at less than 1% of market share globally and only around 3.7% in the countries it currently operates in.
Foolish takeaway
So, what does all this mean? The growth in the North America market has demonstrated a strong acceptance of Nearmap's unique business model. This model has been shown to be easily integrated into new economies where I believe it is only a matter of time until Nearmap expands into other developed economies such as the UK, Singapore and the rest of the world.
It certainly would seem that if management could pull this off while growing revenues and keeping churn low, the Nearmap share price today could look quite cheap!
