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Nearmap share price collapses as company issues downgrade

We examine Nearmap’s just released Market Update – covering the first-half of FY20.

Nearmap share price Source: Bloomberg

Nearmap share price dives on Market Update

Small stocks tend to be more volatile than their large-cap counterparts – especially when it comes to news – good or bad.

Maybe such a phenomenon is no better illustrated than by Nearmap’s (ASX: NEA) price action today. Here, the company’s share price collapsed as much as 24.69% – to $1.84 per share – after management downgraded its Group Annualised Contract Value (ACV) forecasts for FY20.

Though a negative trading day, Nearmap's Chief Executive Officer and Managing Director, Dr Rob Newman remained upbeat, maintaining that:

'Nearmap has established a unique position in the location intelligence market and we will continue to build our leadership position through innovation and world-leading technology that addresses a diverse range of customer needs.’

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Contract figures in focus

Nearmap (ASX: NEA) today reported Annualised Contract Value (ACV) for the group of $96.6 million, across the first-half of FY20 – representing a 23% increase on the previous corresponding period.

Looking at the breakdown of these top-line figures, we see that Nearmap's North American (NA) segment continues to tout robust growth, contributing US$24.9 million to the group’s overall ACV figures – and representing a 41% uptick on the previous corresponding period.

Though exhibiting slower growth, the ANZ region continues to be the largest contributor to NEA's ACV – contributing $61.0 million in the first-half – equating to an increase of 14% on the previous corresponding period.

Finally, the company argued that its first-half results were 'impacted by the inability to close an expected significant partnership deal due to the partner's budget constraints.'

A weaker outlook

Ultimately, it was likely Nearmap’s revised ACV guidance that contributed to today’s pessimistic sell-down.

Here, the company noted that it now expected a FY20 group Annualised Contract Value of between $102 million to $110 million. The company had previously guided for full-year ACV figures of $116 million to $120 million.

Though the market reacted negatively to today’s business update, the company attempted to reassure investors, arguing that it still expects to deliver ACV growth in the 20-40% range – on a year-over-year basis. Not only that, but Nearmap noted that it expects ‘churn’ to 'be managed below 10%, outside of the one-off events outlined previously.'

Speaking of the broader outlook, Nearmap’s CEO, Dr Newman argued that:

'The fundamentals of our business model remain firmly intact and we are confident on the outlook for the medium to long-term, notwithstanding that performance in 1H20 showed that at our current scale, our performance can be impacted by a small number of larger customers.'

Positively at least, Nearmap's CEO noted that as the company scales, 'the potential for a small number of customers to impact our results will become less as we grow.'

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