Nearmap – The Cash Cow has started Mooing (NEA)

I recently took a position in a firm I didn’t even know was listed; higher-end alternative to Google Maps, Australian company Nearmap (NEA).  I first became aware of Nearmap when they mapped Brisbane during the 2011 floods, letting users see a before and after of key areas.  By regularly photographing at higher resolutions than Google Maps, there are significant applications within a number of industries, such as Government, Construction, and any other organisation which requires regularly updated, high resolution maps.

 

An example of Nearmap’s image quality

 

Acquired by intellectual property firm Ipernica, the Nearmap product is now core business for the firm who has divested their IP interests and renamed the company to Nearmap.  Originally a free service, at the end of December Nearmap has switched to a paywall, and turned cashflow positive within a month.

 

While at a market cap of $22m, Nearmap is pretty cheap for a quality product in what is a winner-take-all market, but it breaks a lot of traditional value investing rules.  No long-term history of earnings, no dividend, etc.  Admittedly I’m breaking a few rules here, but I also understand the carrier business pretty well, having successfully capitalised on the meteoric rise in earnings (and share price) of firms such as BigAir and Amcom.  Nearmap is similar to telecommunications firms because they provide access to an asset in exchange for a regular subscription.  Once you’ve covered your startup costs and opex, your incremental cost to add new customers is close to zero, leading to regular and profitable cashflow.

 

While quarterly cashflow is still forecast to be lumpy, Nearmap have great customer re-sign rates, and given the CEO was anticipating to go cashflow positive by the end of 2013, to cover costs a year early is great news and bodes well for the future of the business.  The CEO Simon Crowther is also quite active on Twitter @NearmapCEO.  It’s hilarious to see the outrage from users who were never going to pay for it razzing the CEO for monetizing a product that is evidently of value to the Enterprise.

 

Nearmap could easily get hyped due to its profile to regular investors, and if the price suddenly goes parabolic I’m going to flip my shares for a quick profit, otherwise hold on and hopefully the cashflows will steadily increase. Not my usual value approach, but in my view quite cheap for a quality product at a good price, with loads of upside and (it would seem at this stage) not a lot of downside.

2 thoughts on “Nearmap – The Cash Cow has started Mooing (NEA)

  1. That’s interesting. Thanks for bringing this up.

    I have one question: what’s the chance Google updates its free Google Map tomorrow with similar hi-res images? It appears to me the meaningful end-game is to get acquired by one of Google’s competitors.

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    1. I jumped the gun. I take back what I said. I’ve taken a closer look at NEA. Its value proposition is very different from Google Map. It’s in a niche.

      Thanks for bringing this up.

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