The Nearmap Ltd (ASX: NEA) share price opened 22% lower this morning after the company released an update and revised its guidance for FY20. Here’s what you need to know.
About Nearmap Ltd
Nearmap is a leader of aerial imagery technology and location data, providing frequently-updated, high-resolution aerial imagery. It currently operates in Australia, New Zealand and the United States, and is one of the ten largest aerial survey companies in the world by annual data collection volume.
What’s Happened?
Before market open this morning, Nearmap announced an update on its performance for the period ended 31 December 2019 (1H20).
Key points include:
- Closing annualised contract value (ACV) of $96.6 million — up 23% on the previous corresponding period (pcp)
- Statutory revenue of $46.4 million — up 31% on pcp
- Australia and New Zealand 1H20 incremental ACV of $3.1 million — down from $4.5 million incremental ACV in 1H19
- North America 1H20 incremental ACV of US$2.3 million — down from US$4.8 million incremental ACV in 1H19
What investors appear to be most worried about is the increase in churn in the North America core business and, consequentially, lower FY20 ACV guidance.
North America Update
Nearmap defines churn as ‘ACV value of subscriptions not renewed at the end of a subscription period, offset by the value of recovered subscriptions previously churned’.
Twelve month rolling churn in North America increased from 6.1% in 1H19 to 20.6% in 1H20. Nearmap attributed this to three enterprise churn/downgrade events totalling US$4.85 million:
- The cancellation of a large contract by a partner which was subject to a permanent court injunction
- Two significant churn/downgrade events due to the slowdown in mapping for the autonomous vehicle industry
In addition, the 1H20 result was also impacted by the inability to close an expected significant partnership deal due to the partner’s budget constraints.
Revised FY20 Guidance
At Nearmap’s AGM in November 2019, the company announced it expected ACV for FY20 to be in the range $116 million – $120 million.
Due to the churn/downgrade and deal timing events for a small number of major North America customers, Nearmap has lowered this guidance to $102 million – $110 million.
According to Nearmap, it remains extremely positive on the medium and long-term outlook, and the fundamentals of the business model remain firmly intact.
Nearmap remains confident it will continue to deliver 20%-40% year-on-year ACV growth, and that churn will continue to be managed below 10%, outside of the one-off events mentioned previously.
Commenting on the update, Nearmap CEO Dr Rob Newman said, “The potential for a small number of customers to impact our results will become less as we grow, continue to diversify our customer base and leverage opportunities to grow into new markets.”
What Now?
Nearmap shares were last trading at $1.83, down 24.69% for the day.
The question of whether Nearmap shares are cheap, expensive or somewhere in between lies primarily in valuation.
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