This is not investment advice. Do your own research before taking a position in any of the securities mentioned in the post below. The author may hold positions in any of the securities mentioned.
For those who have never used Nearmaps, their premise is quite simple:
Using long-range satellites, you get inferior quality & generally the recency of this data is quite weak (e.g. Google maps data is often c.1-2 years old and the updating process is quite varied)
There is a big addressable market of users (miners, government, developers & researchers) who need more recent/higher quality data so they will pay big $ for it (current users is shown below)
The cost of getting this data is relatively expensive (via flight) so it took Nearmaps a fairly long time to get sufficient subscribers to justify the cost. Like most SaaS products though, after the break-even point, monetisation is good
Currently, drones/driverless products do not provide sufficiently good imagery
Currently, small/close range satellites are not providing good enough imagery to replace Nearmaps etc
Data costs will come down so the quality of imagery can get better/larger
How has Nearmaps been performing?
Truly, their growth in the US is impressive and they have +$120m in cash to fund this growth. They do have competitors such as the huge Swedish company Hexagon and US Eagleview (the ones that are suing them for patent infringement) however so fair the unit economics suggest they are not giving them a lot to worry about in US/Canada (per below)
Note – a ratio of 100% means that your sale staff write the equivalent of their salary in profit in a year. The median for SaaS providers is 70% (so in effect their over-earning or outperforming).
Just to highlight how positive this is
Even when diluted by their mature ANZ business (+7% ACV), the Nth American ACV grew 54% driven by upsell and churn.
They are now selling deeper stickier engagements (e.g. from selling images to selling 3D and insights/obliques)
Their churn is down from 10% to 7% and yet average revenue per subscription has increased
So why are you saying it’s expensive?
I did a back of the envelope calculation assuming
Revenue growth of 25% in 2022 and +20% CAGR for +5yrs
Expensed R&D is c.10-12% of revenue and most other costs grow at c.5%
Importantly, you need to recognise the depreciation/amortisation impact of the R&D they capitalise
Cap that out in the final year at a stabilised 20x P/E and discount it back to today at 15%
Now I appreciate this is a very high-level valuation, and the P/E or discount rate could be tweaked, however, as shown below I struggle to get to today's price without making the assumption that a) North America will continue to deliver +30% growth and b) they keep +70% sales efficiency in the long run.
Note: ACV and Revenue differ depending on churn/up-selling
So, without exclaiming that THE MARKET IS WRONG, I would simply stress that a minimum of +30% top-line growth is required to justify that today’s price (this is the same growth rate they delivered 2017-21; however North America will stabilise) and that Hexagon/Eagleview give them limited pressure in these markets.
Offsetting this, it may be possible given that they have traction with 3D products and analytical products that they have a competitive advantage, however, I think there are cheaper more certain areas for growth.
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