NEA going gangbusters, page-95

Completely understand many investors doesn't like the "sea of red" in some of the pages in the financial statements.

There is also no argument that the burn rate is high and perhaps Nearmap needs to raise more capital before the end of 2019. But personally I would much prefer they will just borrow another $10 million (& pay a $500k annualised interest bill) then go to the market and dilute all our shares. But that is another topic of discussion.

Snapshot of the current numbers aside, don't forget Nearmap has chosen to be in the current financial situation, without venturing into the US, the financial statements will be in much better shape.

It is pointless to evaluate a rapidly growing company by expecting a $1 IN and $1 OUT mentality. As many business owners will tell you, opening up markets (especially new markets in a foreign land) is HARD, and $1000 IN might yield $Zero OUT when a snapshot of a company's financials are assessed.

It is evident that Nearmap has PUT its entire future into succeeding in the US.
So regardless of the effort that has been put into growing the US, we ALL MUST ASK:

Is the US business working & gaining traction?

The answer is YES !!!

For me, the evidence that the US is gaining traction is loud and clear in the "H1 FY18 Analyst Pack" on page 14.

I was actually SHOCKED to see that the US Average Contract Subscription that are over $50K has grown by 62.8% !

This 62.8% is in fact the highest figure amongst all the other contract value bandingss being:

<$2k (5.2%)
$2k - $15k (18.2%)
$15k - $50k (13.8%)

This tells me that Nearmap is growing into the US by targeting & establishing long term relationships with industry leaders & large corporations with deep pockets.

Unlike in AUS, Nearmap organically and slowly grew its business from small (even being a free product) to large, their growth strategy in the US appears to be 'Go BIG or Go Home' and they are consuming a lot of funds to execute this.

So, is the snapshot of the current expenditure bad, yes it is.

But considering they have already paid for some of the technologies & infrastructures (being the development & research of capturing & backend infrastructure setup costs for offering oblique & 3D products) there are a lot of fix costs that may not reoccur in future years.

The problem with looking at this snapshot is that although we are seeing the immediate expenses of these new product development & marketing costs, we are not seeing the potential revenues associated (or the fruits of this labour so to speak) with these new products until subsequent years. Because of this lag, it is unfair to say for example, in 2017, Nearmap pumped $11 million into the US but only yield a return of $5 million, therefore going to the US is a very bad decision.

So Yes, it is a BAD short term financial decision, but it is a GOOD long term strategic decision !