Afraid To Admit Failure
Long/Short Equity, Deep Value, Value, Growth
Seeking Alpha Analyst Since 2017
J Capital Research has been providing public-market investors differentiated research since 2011 when we published our inaugural report on China Green Agriculture (CGA).
Between 2011 and 2018, we provided clients with over 80 unique investment ideas ranging from companies like Suntech Power (STP--delisted), to Fortescue Metals Group (FMG), to Sound Global (0967 HK--delisted), and Vipshop (VIPS). This research provided a small group of sophisticated investors a six- to 12-month lead on the rest of the global investment community during which they can work with our analysts to understand our process, confirm our findings, and build their investment position.
Beginning in 2018, we moved into activism. Now all our research is openly published on our website.
- NEA's share price has soared based on the promise that the company will have success in the U.S. market. It can't and won't.
- With inferior technology and chaotic management, NEA is just falling farther behind.
- Unwilling to return to its small but profitable market in Australia, NEA is bringing forward revenue, cut costs, and haul in contracts with short-term incentives that lead to high attrition.
Nearmap Ltd. (NEA AX) repeatedly assures investors it deserves a heady share price because of high growth and coming profits in the U.S. market. Actually, the company is laying off sales staff and offering discounts in a panicked attempt to improve margins, kneecapping its efforts to grow. Nearmap is apparently trying to hide its U.S. failure with accounting tricks to pull forward revenue. Without that seemingly aggressive revenue recognition, we believe revenue growth in the U.S could have been just half what was reported.
Nearmap turned up in the U.S. in 2014 with a unique product but failed to monetize it, and now competitors have speeded past. The company incurs twice the costs of the leading U.S. competitor to complete the same surveys and has a vanishingly small U.S. market share after seven years of trying. Its analytic technology lags far behind the competition. Sales to insurers, about 41% of the total, may be challenged in a potential patent dispute with key U.S. competitor. Throwing money at the problem isn’t helping.
The valuation and bull case for Nearmap are based on Nearmap’s assurance that it can replicate its Australian success in the much-larger U.S. market. The reality is that losses are widening, gross margins are going backwards, and competitors are crushing them. We spoke with five competitors, seven former employees, and 17 clients or prospective clients and learned that Nearmap has failed to succeed in any key sector in the U.S. Expect more losses and more hype about the prospects in the U.S. when the company reports H1 FY 2021 on February 16.
Full report at J Capital: https://www.jcapitalresearch.com/nearmap.html
Analyst's Disclosure: I am/we are short NEAPF.
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