Shares in ASX aerial imagery technology company Nearmap Ltd (ASX: NEA) took a substantial hit during the broad market selloff prompted by the coronavirus pandemic. At one point, Nearmap had fallen almost 70% year-to-date to just $0.83. However, the Nearmap share price has rallied more recently, climbing all the way back to $1.48 as at the time of writing. This might leave many investors curious as to whether these are the promising early signs of a longer recovery.
For its part, Nearmap has tried to reassure investors that it has not yet suffered any material negative impacts from the coronavirus pandemic. In an update to the market issued on 21 April, the company stated that its short-term sales performance hadn't been affected by the economic fallout from the crisis. However, it still advised that it had plans in place to slash its operating and capital costs by 30% in order to strengthen its balance sheet in anticipation of any potential market downturn.
Nearmap said it would still remain focused on investing in customer experience and retention initiatives, while also continuing to advance its commercialisation strategies for its 3D, artificial intelligence and roof geometry content. But pursuing these growth strategies means that Nearmap is going to have to find its cost savings elsewhere: notably from its people.
And that's precisely what the company plans to do – starting at the top. It announced that Board and CEO compensation would decrease by 25%, while all other employee remuneration would drop by 20%. This, combined with a range of other measures, would allow Nearmap to reduce its costs by such a degree that it could reach cash flow breakeven by the end of FY20. It would also allow Nearmap to get through the crisis without having to resort to any capital raisings.
This combination of hopeful optimism and prudent planning has so far been well-received by the market, with the Nearmap share price edging up more than 20% in the time since the announcement.
Should you invest in Nearmap?
Nearmap operates in a niche industry. Its high-resolution, aerial imaging allows companies to carry out site visits or inspections remotely. This is particularly useful for construction sites, but it has a surprisingly wide range of applications in sectors as diverse as government, engineering, transport and solar roofing. The South Australian Environment Protection Authority has even used Nearmap's imaging service to monitor illegal waste disposal at certain sites.
With a global pandemic making even domestic travel difficult, there's reason to think that there could be an uptick in demand for Nearmap's services. It gives clients in the construction industry the ability to view distant worksites from remote locations, helps governments with emergency response, and allows real estate companies to showcase their properties without having to physically visit them. These are wonderful solutions when most people are sheltering in place.
But while there is reason to be hopeful of Nearmap's prospects through the pandemic, the extreme uncertainty caused by this crisis still means that it is a risky investment. With significant exposure to 2 areas of the economy that could be particularly hard hit in a potential economic downturn – construction and property – it seems almost inevitable that the company's revenues will decline.
However, investors should take solace from the fact that the company is making serious efforts to reduce its cost base, while still pursuing its growth initiatives. It is a tightrope many companies are trying to walk right now, but if it pays off for Nearmap it could emerge at the other end of this crisis an even more agile and strong company than it was before it began.
