The Nearmap Ltd (ASX: NEA) share price has come under significant selling pressure on Thursday.
In late morning trade the aerial imagery technology and location data company's shares were down 7% to $2.16 before being hurried into a trading halt.
Why is the Nearmap share price under pressure today?
Investors were selling Nearmap shares this morning following the release of a short seller report by Hong Kong-based J Capital Research.
J Capital has previously targeted Harvey Norman Holdings Limited (ASX: HVN) and WiseTech Global Ltd (ASX: WTC).
Why Nearmap?
According to the note, J Capital alleges that Nearmap is struggling in the U.S. market and using accounting tricks to hide this. It commented:
"Nearmap repeatedly assures investors it deserves a heady share price because of high growth and coming profits in the U.S. market. Actually, the company is laying off sales staff and offering discounts in a panicked attempt to improve margins, kneecapping its efforts to grow."
"Nearmap is apparently trying to hide its U.S. failure with accounting tricks to pull forward revenue. Without that seemingly aggressive revenue recognition, we believe revenue growth in the U.S was less than half what was reported."
J Capital claims to have spoken to five competitors, seven former employees, and 17 clients or prospective clients. From this, it found that "losses are widening, gross margins are going backwards, and competitors are crushing them."
It added:
"Critical clients are dropping the service. We spoke with several counties that had reviewed or trialed Nearmap services but ultimately renewed with Eagleview. We learned in an interview that Maricopa County, Arizona—which is featured in Nearmap subsidiary Pushpin testimonials—trialed Nearmap service but still renewed with Eagleview."
Another point that J Capital made related to its churn levels in the United States. It estimates that Nearmap has churned 28% of its current clients since entering the North America market.
The analysts explained:
"That means that more than one in five clients who have trialed the service has chosen not to use it. The company misrepresents the churn."
What now?
The Nearmap share price is in a trading halt pending the release of a response to the report.
This response is expected to be released on Monday. All eyes will be on Nearmap shares following that release.
