Strengthening US market buoys Nearmap growth prospects
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Nearmap chief executive Rob Newman has delivered stronger than expected sales so far in the 2018 financial year. Ross Swanborough
ASX-listed aerial photography company Nearmap is reaping the rewards of an 18 month investment program, with its broadened product range helping it to export its domestic success to the US.
The small cap technology company, which was founded in 2008 in Perth by entrepreneur Stuart Nixon,
expanded to the US in 2014, but in its most recent half-year results analysts were buoyed by better than expected sales from the region.
Canaccord Genuity senior analyst Owen Humphries told
The Australian Financial Review the company's sales efficiency had outperformed its expectations, especially in the States.
"The US aerial imagery market is 10 times the size of the Australia and estimated at $US1 billion to $US2 billion," he said.
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"The incumbent player [Pictometry] continues to sell imagery on perpetual licenses providing Nearmap with a unique opportunity to disrupt this business model as its sells its products on a subscription basis. Successful execution could see Nearmap capture a large proportion of the market share and ultimately generates revenue multiples of its current Australian operations."
In its first half results Nearmap's annualised contract value jumped 31 per cent to a record $54.2 million, while its global customer numbers increased to more than 8200.
In the same period its group average revenue per subscription increased to $6600, while total revenue jumped 27 per cent to $24.7 million.
In 2017 the company expanded on its 2D aerial imaging technology to also provide 3D models of what's on the ground.
The business also offers improved obliques, surface modelling, point cloud and textured mesh analysis. It has also developed a mobile-friendly map browser for its customers.
Mr Humphries said the business had spent 18 months funnelling funds into "enhancing its camera technology and product capability" and this had led to more success both onshore and offshore.
"In Australia, which is the main profit driver,
Nearmap continued to increase its average revenue per user, total customer numbers, improved gross profit margins as its customer churn rate fell. The key health metrics of the business model continue to improve," he said.
"[In the US] sales execution is critical and in my view biggest risk in the US. The company has a superior product offering and scaling its revenue quickly will be testament to this."
In its results for the first six months of the financial year, Nearmap revealed it had achieved an annualised contract value (ACV) in the states of $US8.5 million and 742 subscriptions. In contrast, Australia had an ACV of $43.3 million and 7,477 subscriptions.
Its customers include AGL, Melbourne Airport, Coles and Laing O'Rourke.
Its image capturing technology has captured 90 per cent of the Australian population and 70 per cent of the US population. It is expanding its New Zealand image capturing program this year to include the top 13 cities plus Queenstown.
Offshore expansion
While the company is starting to see some success in the US, Mr Humphries said further offshore expansion would still be years away.
"Nearmap is one of the very few globally, if not the only, aerial imagery company that sells its imagery on a subscription basis - it is highly disruptive," he said.
"If Nearmap can scale to profitability in the US, we see the potential for the company to enter the European, Asian and potentially Latin American markets in due course.
"However this remains years away. The focus is executing on its US opportunity at this time."
Nearmap was last trading at 93¢ and has a market capitalisation of $364.7 million.
In the last five months it has seen a significant share price rise, jumping from below 60¢ in November to its current price, having traded as high as $1.07.
If the five analysts who cover the stock at are correct, the company still has significant upside.
Mr Humphries has a 12-month price target of $1.30 for the company, but of the analysts surveyed on Bloomberg the average price target was $1.41, with every analyst considering Nearmap a buy.
Chardan senior research analyst James McIlree upped his price target to $1.50 last month, saying in a note it had hit a large enough scale in the US to leverage its investments in new products, services, sales and marketing.
"The US market opportunity is large, exceeding $2 billion annually and Nearmap's presence is small, about $7 million, indicating there is still plenty of room for growth," he said.
"In the US we expect revenue to more than double this year to $US6.8 million and while EBITDA will still be negative through 2019, or longer, the losses will be diminishing at a rapid rate."
Mr McIlree also said Nearmap was still generating the majority of its growth from sales of subscriptions for its 2D product, but in the second half of the year it would benefit from increased business stemming from its oblique imagery and 3D offerings.
Nearmap chief executive Rob Newman, while not the founder, has been with the business since 2008 when he came on board as an investor. He took up the top job in 2015 after seven years on the company board.
The business previously traded under the formerly ASX-listed company Ipernica after it was acquired in its early days, but it became the primary entity in 2012 and the business shifted from Perth to Sydney.
Mr Humphries said the company was expected to hit cashflow break-even in the next 12 months.
"You typically buy software-as-a-service companies when they are ramping up their sales and marketing spend - the company knows its unit economics better than anyone else," he said.
"Nearmap fits this category with its sales and marketing spend increasing 38 per cent over the previous 12 months."
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