Nearmap

NEARMAP (ASX: NEA)
ABOUT THE COMPANY:
• Nearmap provides a subscription service, offering, current, and historical, high resolution geo-spatial, 2-D, and 3-D imagery, and data. It uses patented aerial imagery technology, using high resolution cameras mounted on aircraft, to take regular (3-4 monthly) aerial imagery that is translated into a scaled map, that provides 3-d features, shadowing analysis, surveying data, etc. Nearmap covers over 50% of the United States population.
• Customers: local government, architects, engineers, developers, solar installers, planners.
• Disrupter & first mover: Introduced an innovative product into the surveying / geo photography sector.
• Recurring revenue stream, with a SAAS subscription model.
• Capital light model, ownership of IP, camera technology, software, and brand.
• Optionality: Building an ever widening range of products & uses.
• Accelerating revenue growth, with high gross margins. My thesis is based on the company’s growth accelerating for the next few years, as the US operations scale. I anticipate Nearmap annual growth rate will accelerate over the next two -three years.
• Scalable business – can sell the aerial imagery service to expanding market at small marginal cost.
• Accumulation of historical data is enhancing the value proposition and widening its moat.
ADDRESSABLE MARKET
Established a US presence 3 years ago. US is the big opportunity, with annualised subscription revenue of $17.4 M, growing at 82% pa. Using Australia as the benchmark, the addressable market in the US is at least $500 M.
Australia is the most mature market, with annualised subscription revenue of $48 M, growing at 11 % pa. It has taken Nearmap 8 years to grow from zero to $48M in revenue. If it can achieve half the market penetration in the US over the same time frame, US revenue will reach $250 M in five years (70% pa growth rate).
Further market expansion to NZ, Canada, UK flagged, but are currently immaterial.
Further expansion of the market in Australia through enhanced services, such as oblique imagery and 3D imagery, and expanding use cases.
THE FIGURES: (All Figures AUD)
Annual Revenue: $53.6 M (2018) – 32% yoy, $40.7 M (2017) – 30% yoy, $31.3 M (2016)
Gross Margins: 81% (2018), 85% (2017) – margin fall due to investment in US expansion.
Net Profit after tax: $-11 M (2018), $-6.7 M (2017), $-5.3 M (2016),
Current Market Capitalisation: $655 Million
Company Balance sheet: $17 M in cash – NO DEBT. It is forecasting to reach breakeven in 2019.
Annualised revenue per customer growth: 25%.
Customer churn: 7.5% pa.
S & M expense: +40% of revenue due to aggressive US expansion.
RISKS:
Disruption due to technology such as low orbit satellites. This appears to some way off, with the cost to develop the technology, build a platform, and generate the data to compete with Nearmap – no small feat. The new platform would need to beat Nearmap on cost and/or quality. I think this will be technically very difficult to achieve.
Drone technology – although I argue this will benefit Nearmap, who can easily adopt it for their own benefit.
Intensifying competition – Eagleview and Pictometry. It appears to me that Nearmap is ahead in terms of product and features, and has a greater market share, with more resources to develop the product, and grow the business.

11 Likes

Thanks for bringing this to the board. I just have to throw out my obligatory cautions about small market caps.

Stocks with tiny market caps are risky for a number of reasons:

  1. Generally there is little analyst coverage, so there may be unknown, unexposed dangers lurking that we aren’t privy to.
  2. The smaller the market cap, the easier the stock can be subject to manipulation (pump and dump schemes etc).
  3. Even if the business does well, small market cap stocks often fluctuate wildly. This is fine if you have a small allocation, but not if it causes anxiety and worse, panic selling.

Caveat emptor.

Regarding this company specifically:

You gave $56.3m of revenue and a $655m market cap for the PS ratio of about 12. And 32% YoY growth. That’s not exciting enough to get me interested in a micro cap. The growth would have to be a lot more, or the PS a lot less. Just my opinion, of course.

Bear

9 Likes

Sounds like a pretty interesting company/business idea.

RISKS:
Disruption due to technology such as low orbit satellites. This appears to some way off, with the cost to develop the technology, build a platform, and generate the data to compete with Nearmap – no small feat. The new platform would need to beat Nearmap on cost and/or quality. I think this will be technically very difficult to achieve.

Regarding the risks of competition, it might be worth taking a look at Planet Labs, as they do already have a fleet of satellites out there collecting images quite frequently…also a rather cool/interesting company, in the Lux Capital family of companies. I think at some point I had previously recommended a podcast interview with Josh Wolfe of Lux on the board here in one of the off-topic podcast threads.

Planet website:
https://www.planet.com/

Nearmap website:
https://go.nearmap.com/

-volfan84

1 Like

sean,

Thanks for bringing this… nice introduction.

I believe this space is more competitive than you realize.
However, market potential is much larger than you suggest.

I recently red / listened to Michael Lewis “The Coming Storm” where he describes how US government satellite imagery database is used / abused in this space… and also where is the real money… it is fascinating book by itself and must read if you invest in this space.

And I agree with bear’s comments.

good luck!
NIlvest

1 Like

Hi all,

Thanks for the feedback. Yes, I agree, the valuation is definately, stretched, and I was fortunate to buy in well below the current valuation. The question is will growth accelerate from here to justify the valuation.

There are very few technology stocks on the ASX, and the result is very crowded trades, and valuations higher than here in the US - hence why I am spending and investing more and more in the US as time goes on.

In relation to Planet Labs, it is not a direct competitior and serves different markets. Nearmap produces higher resolution images, providing higher definition, and higher accuracy in its imagery. A strong competitive advantage. The higher degree of acurracy is critical for use cases such as surveying, solar assessments, and property valuation.