Last month, US tech megastocks spearheaded a global market sell-off, following the US Federal Reserve's promise that interest rates will stay low through to 2023.
The ASX followed Wall Street's volatile technology sell-off in mid-September. But, while many technology shares were plummeting, the Nearmap Ltd (ASX: NEA) share price has increased by more than 4% in the few weeks after the news.
Let's look at how this company adds value to its clients in the Australia and New Zealand (ANZ) and North American markets, and whether the Nearmap share price could be a buy.
Unique intelligence product
This Australian-based aerial imagery technology and location data company owns highly sensitive data relating to location intelligence with customers across Australia, the US, Canada and New Zealand. Nearmap operates a subscription as a service (SaaS) business model, which means it is able to grow globally and replicate at scale.
North American market as the next growth driver
Despite the Nearmap share price reaching a 2-year low at $1.01 per share in March this year, the resilience of the company's share price was demonstrated when it rebounded to between $2.30 and $3 per share, driven in part by it reaching an annual contract value (ACV) milestone of $102 million in May.
Unfortunately, the COVID-19 pandemic and the downgrade in value of 3 Nearmap's contracts in FY20 caused a revision to its total contract value down to $102 million–$110 million, lower than its forecasted range of $116 million–$120 million. This resulted in a slowdown in Nearmap's ANZ market growth, compared to the improving North American market.
After a revamp of its sales strategy against the backdrop of macroeconomic uncertainty, Nearmap has enjoyed the tailwind of increasing roofing, insurance and government business contracts in the US – which make up 40% of its group ACV portfolio.
There are more opportunities for the business to leverage its existing licensed technology to serve roofing geometry to partners in the roofing and insurance industries in the US. This is a huge market as there is an increase in frequency of severe weather, which drives the demand of such services.
Fundraising to support growth
To support the expansion plan mentioned above, in September Nearmap completed an institutional placement and further share purchase plan to raise $72.1 million and $20 million, respectively.
While the economic outlook in 2020 looks different from 2016 – when Nearmap banked $20 million after placing 28.6 million new shares to sophisticated, professional and institutional investors at the price of $0.70 per share – Nearmap is trying to replicate its success through entering the North American markets and develop more advanced technology.
In the past, Nearmap focused on creating not only high resolution 2D and oblique imagery but also natural colour point clouds and textured 3D meshes. Now in 2020, Nearmap has a plan to accelerate growth and roll out its Hyper Camera3 System to capture more accurate vertical imagery in adverse conditions.
Is the Nearmap share price a buy?
In my view, Nearmap is still doing well in keeping a positive growth rate of 11% in average revenue per subscriber in FY20 amid COVID-19.
The business is also growing very quickly and has a competitive advantage of being able to cover not just the metropolitan areas, but also the remote suburbs for commercial usage, as opposed to Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)'s Google Earth.
I believe the current Nearmap share price of $2.48 (at the time of writing) looks attractive, particularly given the company's growth prospects and plans to further commercialise its high tech products in the North American regions.
