Nearmap (ASX:NEA) share price soars 14% after response to short sellers

The Nearmap (ASX:NEA) share price is flying higher today as the company released its response to a short seller article published on Friday.

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The Nearmap Ltd (ASX: NEA) share price is soaring today. This comes as Nearmap released its response to a short-seller attack that resulted in it requesting a trading halt Friday afternoon. At the time of writing, the Nearmap share price is exploding by 14.35% to $2.47.

The imaging provider also released its half-year results this morning which included valuable rhetoric on the short-seller saga. Contrary to the short sellers’ article, Nearmap posted record performance in North America.

Short-seller attacks

Last Friday, news of the short seller attack hit the Nearmap share price, causing it to fall by more than 7%. Hong Kong-based J Capital Research targeted the aerial imaging company’s shares before it was hurried into a trading halt.

J Capital claimed that Nearmap was struggling in the United States market and using accounting errors to pull the wool over investors’ eyes. The shorting firm also made the point that Nearmap’s churn is currently sitting at 28% in the US. This suggested that almost one in five clients who have trialled the service opt not to continue using it.

Nearmap share price rebounds

The Nearmap share price is rising strongly this morning as the company posted its response to what it calls an “erroneous” report. Nearmap claimed that “the report contains many inaccurate statements and makes unsubstantiated allegations of a very serious nature.”

In reply to the report, Nearmap responded with details regarding its US market strategy, technology and accounting practices.

Importantly, management addressed the claim that “Nearmap has failed to succeed in any key sector in the U.S.” Nearmap highlighted that in the results released today, North American annual contract value (ACV) increased by 41% to US$35.1 million, representing record half-year growth. Moreover, Nearmap’s growth in each of its three key verticals (insurance, government and roofing) was strong. Roofing was the pick of the bunch, up 198% on the prior half.

Regarding the company’s churn, management denied J Capital’s claims, highlighting its FY21 first-half result of 6.5% churn up until 31 December 2020.

Furthermore, to every claim laid out in the short report, Nearmap provided the firm refutation, together with supporting evidence, that:


Management comments

Commenting on the short report, Nearmap CEO and Managing Director Dr Rob Newman said:

This Report demonstrates a deep misunderstanding of our business and the industry in which we operate. The Report contains many inaccurate statements, makes unsubstantiated allegations and presents a misleading representation of our business. Our Company has delivered a very strong result which clearly demonstrates the strength of our business and the high levels of engagement of the Nearmap team. All members of the Board are resolutely committed to the Company’s long-term growth.

Foolish takeaway

The publication of the short report that hit the Nearmap share price hard is once again prompting discussion over whether shorting should be regulated. My colleague Tony Yoo also addressed this question earlier in the month after short sellers targeted Tyro Payments Ltd (ASX: TYR) on the ASX and began the renowned GameStop Corp (NYSE: GME) saga on the US markets

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Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. and Tyro Payments. The Motley Fool Australia has recommended Nearmap Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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