This morning Nearmap Ltd (ASX: NEA) reported its half-year results for the period ending December 31 2018. Below is a summary of the results with comparisons to the prior corresponding half.
- Revenue and other income of $36.3 million, up 46%
- Profit before tax of $312,000
- Net loss after tax of $1.97 million, down 70%
- EBITDA (operating income) of $8.1 million
- Loss per share of 0.47 cents, compared to loss of 1.67cps in prior year
- Annualised contract value (ACV) grew 44% to $78.3 million,
- ACV in Australia of $53.3 million
- ACV in US of US$17.8 million
- Average revenue per subscriber grew to $8,410
- Total subscriber lifetime value of $1.07 billion, up 123%
- Churn (customer turnover) reduced to 6% from 9%
- Closing cash balance of $81.3 million, no debt
The Nearmap share price is up 11% to a record high of $2.66 on the back of today's results and is up more than 400% since trading for just 50 cents per share in May 2017.
The potential rise of Nearmap is something I've flagged dozens of times over the last few years and investors are now waking up to its software-as-a-service (SaaS0 high-margin business model that is starting to flow through to its financials more clearly.
Why is Nearmap rising so much?
On a trailing basis the highlight of the result is the $312,000 profit before tax, but markets are forward-looking and it's the 123% growth in portfolio lifetime value (LTV) to $1.07 billion that is likely propelling the share price higher.
The LTV effectively equals the average revenue per subscriber (which rose 13%) multiplied by the number of subscribers (also up 13%) to produce the annualised contract value (ACV) of the sum of all subscribers' payments due over the 12 months ahead.
The ACV is then multiplied by the gross profit margin of 82% (up 2%) before being divided by churn or the percentage of customers that leave over the period. Churn was down impressively from 9% to 6%.
The point being that if we work the maths backwards we can see that all the metrics are moving in the right direction for Nearmap to produce the 123% growth to an LTV of $1.07 billion.
This suggests potentially huge profits ahead given the growth rates and high operating profit margins.
As such, I'm not surprised to see the share price gains and while the stock has run hard I think it has room to run higher over 2019 and 2020 if Nearmap delivers more strong ACV growth in the US and Australia.
It also has plans to expand into Canada and potentially elsewhere in Europe for example with $81 million cash in hand to fund its plans.
You can't ask for much more than that as a growth-oriented investor, but I'd caution that Nearmap like any stock carries substantial risks around competition, valuation, and execution in particular.
Other stocks I've flagged before that boast similar SaaS-based economics to Nearmap include Xero Limited (ASX: XRO) or Pro Medicus Limited (ASX: PME).
