With the Nearmap Ltd (ASX: NEA) share price down by 35% since the end of January, is now the time to buy this ASX tech share?
In attempting to answer this question, let's take a look at what led to this sharp fall and examine the company's recent financials and future growth strategy.
Strong revenue growth weighed down by a higher net loss
In late January this year, the Nearmap share price took a massive hit which was triggered by an earnings downgrade. This downgrade was driven by the loss of a large contract and two significant churn/downgrade events due to the slowdown in mapping for the autonomous vehicle industry.
On a more positive note, the company followed this update with a fairly solid set of financial results. For the half-year ended 31 December 2019, Nearmap recorded a 31% increase in total subscription revenue to $46.2 million, driven by continuing strong growth in Australia and New Zealand and North America.
Nearmap delivered a net loss after tax of $18.6 million, a massive 843% increase on the prior period. However, this loss appears to be primarily caused by a 61% increase in operating cost base, in line with the company's investment strategy outlined in its 2018 capital raise. As such, losses are likely to reduce as the returns flow in from these investments.
Nearmap still has a strong balance sheet with no debt on its books. Further, the company anticipates it will continue to grow its business moving forward, expecting somewhere between 20% to 40% annualised contract value (ACV) growth year on year.
North America a massive opportunity
Nearmap's investments in sales and marketing in North America appear to be on track and are delivering results in the scalable part of its business. The region is already the largest part of Nearmap's growth story and now represents 37% of its overall portfolio today.
A big part of the aerial imagery company's growth strategy moving forward is to ride on its expansion into North America, a market in which the company sees as still offering a massive opportunity.
Australia, however, remains a core part of Nearmap's business and there appears to be still a long-term growth runway here as well.
Nearmap recently commented that it will look to other geographies in the future, possibly next year, but its current focus will remain on North America.
Additionally, the company is expanding into new market segments. Nearmap is already seeing some traction in its new artificial intelligence product, while its recent acquisition of Pushpin provides technology that taps into semi-automation of roof geometry, a market it believes has significant potential in the US.
Foolish takeaway
While there are other providers in the aerial mapping technology industry, none of those players so far have been able to scale anywhere as effectively as Nearmap does, or replicate the extent of its subscription-based business model.
In saying that, no company is ever immune from market competition. Nearmap will have to continue to innovate and gain scale in America to cement its position in the market.
Growing competition could eventually come from the likes of Google and Nearmap will also need to reduce its net loss moving forward.
