May was not a pretty month for the Nearmap Ltd (ASX: NEA) share price.
After surging to $2.38 at the start of May, shares in Nearmap closed the month more than 24% lower. Despite encouraging sector tailwinds, shares in the aerial imaging company were hammered on the back of legal issues in the US.
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Why did the Nearmap share price tumble in May?
The Nearmap share price burst out of the blocks at the start of May. Investors were jumping to get their hands on Nearmap shares after the company upgraded its guidance for FY21.
In an update released after market hours, Nearmap revealed that its strong performance in the first half had continued into the second half of FY21. As a result, the company increased its full-year guidance for annual contract value (ACV).
However, things quickly turned sour for the aerial imaging company. The following day, shares in Nearmap were placed in a trading halt in response to potential legal proceedings.
In another announcement, Nearmap informed investors that legal proceedings had been filed on behalf of competing aerial imagery firm, Eagle View Technologies.
According to the complaint, Eagle View and its subsidiary, Pictometry International Corp, allege patent infringements on certain roof estimation technologies.
Nearmap's management vigorously defended the complaint and assured investors that the company remained unaffected by the complaint. Despite the assurance, investors were quick to dump shares in Nearmap.
Outlook
Nearmap offers subscription-based aerial imaging technologies that capture multiple viewpoints to create 3D representations. The company has demonstrated great growth potential in the US, with ACV surging 41% to $US35.1 million for the first half.
Nearmap derives about 41% of its US sales from roof reports for the insurance sector. However, the company has noted that its roof estimation software is not a core part of the business. As a result, the legal action invoked by Eagle View does not involve its other technologies.
Recently, analysts at Morgan Stanley reiterated their bullish outlook on Nearmap. According to a research note from the broker, analysts agreed that patent infringement claims only relate to Nearmap's roof imaging and not all elements of its product.
According to analysts at Morgan Stanley, estimates roof imaging accounts for less than a quarter of Nearmap's US operations. As a result, analysts noted that no material sales impacts had been experienced by the company, reiterating a $3.20 target for the Nearmap share price.
