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Nearmap share price slides 13% on release of financial results

ASX aerial imaging shares represented by image of a city from above
Image Source: Getty Images

The Nearmap Ltd (ASX: NEA) share price slumped 13% in early afternoon trading following the release of the company’s FY2020 results this morning. Here’s why I think the Nearmap share price is one to watch.

What does Nearmap do?

Founded in Perth in 1998 in Perth, the company provides high resolution aerial imagery technology and location data for companies and government customers across Australia, the United States, Canada and New Zealand. Its technology enables clients to conduct virtual site visits rather than having to fly to and over site locations in person.

Nearmap shares listed on the ASX in 2000. Today the company has a market cap of $1.1 billion.

How did the company perform in FY20?

Nearmap reported an 18% increase in its annualised revenue contract value (ACV) from the previous corresponding period. ACV reached $106.4 million. North America remains the company’s largest market, but ACV growth in Australia and New Zealand is strong, up 11% on FY2019. 43% of Nearmap’s ACV portfolio is now on multi-year subscriptions, up from 40% the previous financial year,

Statutory revenue of $96.7 million was also up, representing a 25% increase over the previous period.

Nearmap reported a 47% rise in operating expenses. The company attributed this to targeted investment across the business to build foundations for scalable growth. Nearmap invested $49.5 million cash for asset creation to deliver long-term benefits for its business.

The company placed a strong emphasis on cash management due to the impacts of the coronavirus pandemic. Initiatives implemented in April included permanent and temporary reductions to employment costs. The cash balance for the financial year was $33.8 million. That’s down from $75.9 million on the previous year.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $9.1 million, down from $15.5 million in FY2019.

Weathering the storm

Nearmap reset its forward guidance in early February this year, after some its customers in North America were effectively shut down.

Nearmap CEO Dr Rob Newman said the company maintained that guidance through the second half, despite the coronavirus pandemic. “That’s a really good indicator that our business has been strong and resilient through this more challenging period,” he said.

Nearmap shares are down 7% year-to-date. But after slumping 68% from mid-January to its 25 March low as COVID-19 fears sent panicky investors rushing for the exits, the Nearmap share price has gained a blistering 171%.

Nearmap is listed on the S&P/ASX 200 Index (ASX: XJO). In comparison, the ASX 200 is down 9% since 2 January and up 23% from 25 March.

My chat with CEO Rob Newman

Nearmap CEO Dr Rob Newman said today that while 25% of the company’s ACV portfolio comprised architecture, engineering and construction, it was government – at 18% – that’s seeing some of the strongest growth. He noted the strength of Nearmap’s diversified portfolio included utilities, insurance, solar, and roofing – another strong growth area in North America.

“We have small subscriptions of $1,000 a year all the way up to subscriptions in the multi-millions. Our customers tend to have outside assets or need to plan jobs in and around cities,” Dr Newman said.

While COVID-19 has impacted companies across the globe, he said this could prove to be a tailwind for Nearmap. “Our customers need to continue running their businesses, they need to continue doing jobs outside. And they need to continue to assess their assets. We have a unique ability to provide that remotely,” he said.

Those unique abilities include Nearmap AI and the company’s 3D content. Dr Newman said they were “really helping our customer make good decisions without needing to go on site. Assessing the value or risk of a property, or assessing a claims adjustment, and government, which is doing so much with managing the outside environment.

Dr Newman said as a leader in its technology, the biggest threat facing Nearmap was “how quickly we can take a global opportunity that’s in front of us in the multi-billion-dollar aerial imagery market”.

The ‘Netflix of location’

Nearmap also boasts significant barriers to entry for any would be start-up competitors.

According to Dr Newman:

One of the things we’re very proud about is our technology leadership, and how we use that technology to solve customers’ problems. We were the first company globally to use a very high efficiency camera system for processing architecture. What other companies still take months to do, we do in days. Then we have our subscription business model. In many ways I think of us as the Netflix of location. We generate the content and we deliver it to our customers.

And now we have our 3D and AI. There is no other company in the aerial imagery space that would do that complete vertical integration on the scale we do. We do it for 80 million properties across the world.

I couldn’t resist asking him about Google Maps. And I was surprised by his answer:

Google has a consumer and autonomous vehicle focus. Google is not providing our kind of content to enterprises and government anymore. Late last year Google announced to every enterprise customer they had in North America that they’re no longer providing mapping content to those companies. That’s playing to our benefit, because we’ve had government insurance coming to us saying, can you replace what we were getting from Google.

As for future growth plans, Dr Newman said:

A number of our North American customers have asked if we can capture images in Europe and selected countries in Asia as well. But we have such an enormous opportunity in North America that our focus is really there. But as our customers ask about Europe and Asia, we will explore it.

As the company continues to grow in the first weeks of the 2020 financial year, I think the Nearmap share price is one to keep an eye on.

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Motley Fool contributor Bernd Struben 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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