Nearmap Share Price Falls 25% – Here’s Why

The Nearmap Ltd (ASX: NEA) share price was trading as much as 25.51% lower today after the company released a FY20 business update to the market. Here’s what you need to know.

FY20 Market Update

This morning, Nearmap announced an update on its performance for the period ended 31 December 2019 (1H20). Key figures 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
  • North America 1H20 incremental ACV of US$2.3 million — down from US$4.8 million incremental ACV in 1H19
  • Australia and New Zealand 1H20 incremental ACV of $3.1 million — down from $4.5 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 Churn

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

According to Nearmap, following the churn/downgrade of these two contracts, its exposure to the autonomous vehicle industry is minimal, with potential future upside as the industry recovers.

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.

Lower FY20 Guidance

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.

This compares to Nearmap’s previous guidance of $116 million – $120 million at its AGM in November 2019.

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 $1.87, down 23.04% for the day.

The question of whether Nearmap shares are expensive, cheap or somewhere in between lies primarily in valuation.

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