Here's how this ASX 200 tech share is navigating the coronavirus crisis

With bold plans to slash its cost base while still pursuing growth opportunities, ASX aerial imagery company Nearmap Ltd (ASX: NEA) is hoping it can emerge stronger at the other end of the coronavirus crisis.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares in ASX aerial imagery technology company Nearmap Ltd (ASX: NEA) took a substantial hit during the broad market selloff prompted by the coronavirus pandemic. At one point, Nearmap had fallen almost 70% year-to-date to just $0.83. However, the Nearmap share price has rallied more recently, climbing all the way back to $1.48 as at the time of writing. This might leave many investors curious as to whether these are the promising early signs of a longer recovery.

For its part, Nearmap has tried to reassure investors that it has not yet suffered any material negative impacts from the coronavirus pandemic. In an update to the market issued on 21 April, the company stated that its short-term sales performance hadn't been affected by the economic fallout from the crisis. However, it still advised that it had plans in place to slash its operating and capital costs by 30% in order to strengthen its balance sheet in anticipation of any potential market downturn.

Nearmap said it would still remain focused on investing in customer experience and retention initiatives, while also continuing to advance its commercialisation strategies for its 3D, artificial intelligence and roof geometry content. But pursuing these growth strategies means that Nearmap is going to have to find its cost savings elsewhere: notably from its people.

And that's precisely what the company plans to do – starting at the top. It announced that Board and CEO compensation would decrease by 25%, while all other employee remuneration would drop by 20%. This, combined with a range of other measures, would allow Nearmap to reduce its costs by such a degree that it could reach cash flow breakeven by the end of FY20. It would also allow Nearmap to get through the crisis without having to resort to any capital raisings.

This combination of hopeful optimism and prudent planning has so far been well-received by the market, with the Nearmap share price edging up more than 20% in the time since the announcement.

Should you invest in Nearmap?

Nearmap operates in a niche industry. Its high-resolution, aerial imaging allows companies to carry out site visits or inspections remotely. This is particularly useful for construction sites, but it has a surprisingly wide range of applications in sectors as diverse as government, engineering, transport and solar roofing. The South Australian Environment Protection Authority has even used Nearmap's imaging service to monitor illegal waste disposal at certain sites.

With a global pandemic making even domestic travel difficult, there's reason to think that there could be an uptick in demand for Nearmap's services. It gives clients in the construction industry the ability to view distant worksites from remote locations, helps governments with emergency response, and allows real estate companies to showcase their properties without having to physically visit them. These are wonderful solutions when most people are sheltering in place.

But while there is reason to be hopeful of Nearmap's prospects through the pandemic, the extreme uncertainty caused by this crisis still means that it is a risky investment. With significant exposure to 2 areas of the economy that could be particularly hard hit in a potential economic downturn – construction and property – it seems almost inevitable that the company's revenues will decline.

However, investors should take solace from the fact that the company is making serious efforts to reduce its cost base, while still pursuing its growth initiatives. It is a tightrope many companies are trying to walk right now, but if it pays off for Nearmap it could emerge at the other end of this crisis an even more agile and strong company than it was before it began.

Motley Fool contributor Rhys Brock owns shares of Nearmap Ltd. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

Technology Shares

Guess which ASX tech stock is sinking 6% despite some very big news

Let's find out what is happening with this tech stock today.

Read more »

Three people gather around a large computer screen where they are looking at something that is captivating their interest with a graphic image of data and digital technology material superimposed to the right hand third of the image.
AI Stocks

What's the outlook for Appen shares in 2025?

For those bullish on the AI space, this could be one to watch

Read more »

A woman holds her hand out under a graphic hologram image of a human brain with brightly lit segments and section points.
Technology Shares

Up 119% this year, can BrainChip shares soar again in 2025?

Can the company keep up the momentum?

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Technology Shares

Why is this ASX fintech stock suddenly crashing 22%?

This stock is having a very bad start to the week. What's going on?

Read more »

Three businesspeople leap high with the CBD in the background.
Technology Shares

Guess which ASX All Ords stock is leaping 12% today

Why is this stock having a strong start to the week? Let's find out.

Read more »

A young man working from home sits at his home office desk holding a cup of tea and looking out the window
Technology Shares

Pro Medicus shares higher on $30m contract win

Good news is lifting this high-flying stock on Monday. Let's dig deeper into it.

Read more »

Robot humanoid using artificial intelligence on a laptop.
Technology Shares

The best ASX AI stock to invest $500 in right now

The team at Morgans thinks this is one of the best ways to invest in AI on the ASX.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Technology Shares

This ASX All Ords stock just crashed 25%! Here's why

Let's find out what is making investors rush to the exits on Thursday.

Read more »