“Amazon CEO Jeff Bezos is waltzing into Australia expecting an easy win…
“Too bad he didn’t bother to check a map first.
“His firm will be totally lost down here… unless YOU step up to help.
“Here’s how to guide Amazon across Australia…all from the comfort of your own couch… and potentially turn a 64-cent ‘guidance fee’ into a king’s ransom…”
That’s the opening of the recent ad for Sam Volkering’s Australian Small-Cap Investigator — and the ad is mostly focused on the fact that Amazon’s drone delivery programs will require much better data about the landscape in order to perform properly in Australia.
I’m a little short on time today, so we’re going to jump forward to the clues they drop on the actual order page (you can check out the full ad here if you want more of the hype):
“Right now, you can own a piece of this uniquely Australian company for just 64 cents a share.
“But that pocket-change price won’t last long.
“So let me help you get your money in the right place to profit as shares surge, with my personal special guidance report, ‘Australian Invasion: Your Trillion Dollar Battle Map for the Future of Commerce’.
“Why this one local player is the only solution to Amazon’s Achilles’ heel here in Australia (Want a hint? Their specialised mapping system is the ONLY option that accurately adjusts for our annual continental drift — and without that fix, no map of Oz will ever be accurate enough for real-world retail use.)”
It’s true that Australia has a larger challenge with GPS-type navigation than most, since it’s on the fastest-moving continental plate (Australia moves about 7cm a year)… but that is known and the adjustments are being made to the Australian data… and I should point out quickly here that this company’s aerial images will have to “talk to” standard GPS and GIS systems, I presume that no self-driving car or drone can reliably navigate to a specific location by processing “fly by” images, they need coordinates.
Perhaps this secret little company does a better job about matching its data to the right location data sets, I don’t know, but in all likelihood it would be something that works with, not replaces, existing location services and data.
Anyway, a couple more clues…
“… just this past summer, the company released a ground-breaking update to their existing technology…one that has major global brands on three continents lining up to sign new contracts with them.
“On 16 November, they’ll host a special shareholder event and reveal the latest updates on both their new mapping product and the full count of their brand-new partners.
“I’m expecting a major uptick in the stock — and if you’re invested, as I recommend, you could lock down the most generous payday of your life.”
Okey dokey, so what’s the stock? This is, sez the Thinkolator, the small Australian aerial imaging firm Nearmap (trades in Australia at ticker NEA… NEAPF is the OTC symbol on the “grey market” in the US, but there is essentially no volume so you’d be asking for trouble to buy it OTC — you’d almost certainly have to overpay substantially to get shares, and accept a lowball bid if you ever need to sell).
Nearmap is a provider of aerial mapping, with their claim to fame being that they provide higher resolution photos, with meshed images from multiple angles providing 3D images of the landscape, and that their photos of their coverage area are both higher resolution than and updated far more frequently than most commercially available satellite images.
They collect their data using a proprietary camera system that they fly in a small plane over the coverage area, and they focus on population centers — they just started to aggressively collect US data about three years ago, but have been covering most of Australia’s population for many years and update those images of the most-important areas (like urban centers) up to six times a year. So they provide a valuable time comparison as well — you can see what an area looked like over time, from the air, in precise detail over a period of years.
The customers are not primarily drone-drivers, though there’s some chance that autonomous drones would find the data useful, the customers are mostly folks like city planners and builders and real estate people (getting accurate measurements and up to date images is important) and solar companies (better data to decide which locations would most benefit from solar, so who should their salesmen visit next).
I just checked, and my neighborhood in a small college town has been captured by Nearmap every six months since 2014 — no idea why or who’s using that data, but I imagine it’s pretty cool to see.
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Nearmap has a blog entry up from last year that talks up a projection that the aerial imaging market will exceed $3.4 billion by 2023… and they don’t say anything about that “next generation drones” stuff or whether Amazon will need better aerial imaging to make deliveries, which is a nice story but probably not a meaningful driver of results in this area, Nearmap says it’s all about productivity:
“The uses of aerial imagery extend far and wide. State and local governments use it to plan, inspect and maintain transportation infrastructure. Roofers, solar companies, landscapers, pavers and realtors target new business, create proposals, measure distances and calculate areas. Architecture, construction and engineering firms envision how their design impacts real life. They mitigate risk and construction delays. Once complete, they continue to use aerial imagery for maintenance and operations.
“The common theme is increased productivity. By reducing the need to send people on site, by accessing up-to-date imagery from your desktop or mobile device, by analyzing change over time, dozens of industry segments are dramatically increasing their productivity and impacting the bottom line. In a way, market growth is driven by this core factor.”
Nearmap is trading at about A$0.68 today, and it’s a small company with a market cap of A$260 million (that’s about US$200 million, for those keeping score) — it also might soon be at a pretty interesting inflection point financially, so it might be worth the research if you’re inclined to learn about a new industry.
The inflection point is that they’re starting to get closer to profitability — and it wouldn’t take a terribly dramatic increase in revenues to reach profitability. Their assets — primarily the library of images — do depreciate, and pretty quickly, so that cuts into earnings as well (and rightly so, they do have to replace all those images many times a year), but if you look at the after tax cash flow they did have positive cash flow of a couple million dollars (it cost them $10 million in investments — capex, really, for product development and purchases of equipment) to get that cash flow, but that is still an improvement over least year, when after-tax cash flow was negative (and they made $7.4 million in those “capex” investments).
What appeals to me is the perpetual value of the library — in some ways this reminds me of the seismic data companies who collect and process seismic data that’s used by oil and gas companies. They can sell the same data (or subscriptions to the data set) to 50 companies, and after the first few the cost of data acquisition is covered… and the data library becomes incrementally more valuable each time a new location is added to the “flyover” route or the time series of images of each location becomes longer. There’s a huge potential for scaling this business if they can sell more customers on the value of the data and get more subscriptions (this is a “cloud” service product — they don’t sell the data, they sell subscriptions to it, with a focus on selling to more large organiations who can pay much higher enterprise subscription prices).
So it’s interesting — it’s not profitable, and it’s not growing at nosebleed rates, but it is close to profitable and it is growing, with a reasonably sustainable model because the proven and established Australian business is being used to subsidize the newer US business (They do make money in Australia, where they’ve been building a customer base for longer and have more data, and the free cash flow from there is used to boost their data collection and selling operations in the US).
It’s encouraging that their mature Australian market is performing well, though that doesn’t guarantee that the same thing will happen in the US in the end (the other Aussie tech stock that caught my eye in a teaser ad recently, Aconex, is essentially doing the same thing — trying to globalize a locally successful Australian “software as a service” business).
I haven’t looked at it enough to be confident that A$260 million is a good valuation at which to buy shares, and I don’t know anything about the competitive landscape or what might keep customers from wanting to pay for their product (ie, is cheaper satellite imagery ‘good enough’ for many cases? Are their other aerial providers that are cheaper and similar in quality or scope? I don’t know — there are a lot of folks who collect aerial imagery, including giants like Microsoft and Google who could probably substantially change this competitive landscape if they improved their offerings)… but I am intrigued enough by my 30-minute tour through their website to keep researching this one a bit.
If you want to dig in, their recent Annual Report is here… and yes, they do have an event coming up, as teased, which might provide an update on their strategy — they did release an Investor Strategy Presentation at the AGM last year, and their AGM this year will be on November 16. The stock did not react with any great positivity to that presentation a year ago (it was at about 63 cents in early November last year as well, and has fluctuated roughly between 50-75 cents since), but who knows what will happen this year.
And yes, I must close with a reminder that the Jeff Bezos/Amazon connection looks like not much more than an eye-catcher for the ad — the company might have designs on selling to drone operators someday, but that’s nowhere near their core focus, and they’re far from addressing their more natural market fully. The lack of good high-definition aerial imagery is not what’s holding up drone delivery or autonomous vehicles (they don’t need high-resolution 3D aerial photos to succeed in Australia or anywhere else, they’ve already got arrays of proximity sensors and GPS). Who knows what the future might hold, but I’d count on the core customers for Nearmap’s products remaining pretty similar for the near future — builders, planners, real estate folks, solar, industrial maintenance, maybe agriculture if they expand their coverage areas, etc.
It’s your money that gets invested in your portfolio, though, so it’s not my intrigue that counts — it’s your interest. So go forth, researchify if you’re so inclined (and if you can trade in Australia), and let us know what you think with a comment below. Thanks for reading!
Disclosure: I own shares of Amazon and Alphabet. I do not own any of the other stocks mentioned above, and will not trade in the shares of any covered company for at least three days, per Stock Gumshoe’s trading rules.