Why the Nearmap (ASX:NEA) share price tanked in May

Despite encouraging sector tailwinds, shares in the aerial imaging company were hammered on the back of legal issues in the US.

| More on:
Falling ASX share price represented by woman looking shocked at mobile phone

Image source: Getty Images

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

May was not a pretty month for the Nearmap Ltd (ASX: NEA) share price.

After surging to $2.38 at the start of May, shares in Nearmap closed the month more than 24% lower. Despite encouraging sector tailwinds, shares in the aerial imaging company were hammered on the back of legal issues in the US.

Why did the Nearmap share price tumble in May?

The Nearmap share price burst out of the blocks at the start of May. Investors were jumping to get their hands on Nearmap shares after the company upgraded its guidance for FY21.

In an update released after market hours, Nearmap revealed that its strong performance in the first half had continued into the second half of FY21. As a result, the company increased its full-year guidance for annual contract value (ACV).

However, things quickly turned sour for the aerial imaging company. The following day, shares in Nearmap were placed in a trading halt in response to potential legal proceedings.

In another announcement, Nearmap informed investors that legal proceedings had been filed on behalf of competing aerial imagery firm, Eagle View Technologies.

According to the complaint, Eagle View and its subsidiary, Pictometry International Corp, allege patent infringements on certain roof estimation technologies.

Nearmap's management vigorously defended the complaint and assured investors that the company remained unaffected by the complaint. Despite the assurance, investors were quick to dump shares in Nearmap.

Outlook

Nearmap offers subscription-based aerial imaging technologies that capture multiple viewpoints to create 3D representations. The company has demonstrated great growth potential in the US, with ACV surging 41% to $US35.1 million for the first half.

Nearmap derives about 41% of its US sales from roof reports for the insurance sector. However, the company has noted that its roof estimation software is not a core part of the business. As a result, the legal action invoked by Eagle View does not involve its other technologies.

Recently, analysts at Morgan Stanley reiterated their bullish outlook on Nearmap. According to a research note from the broker, analysts agreed that patent infringement claims only relate to Nearmap's roof imaging and not all elements of its product.

According to analysts at Morgan Stanley, estimates roof imaging accounts for less than a quarter of Nearmap's US operations. As a result, analysts noted that no material sales impacts had been experienced by the company, reiterating a $3.20 target for the Nearmap share price.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 30 April 2025

Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. The Motley Fool Australia has recommended Nearmap Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Fallers

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Dexus, Mayne Pharma, Nufarm, and Treasury Wine shares are falling today

These shares are having a tough session on Thursday. But why?

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.
Share Fallers

Why James Hardie, Mayne Pharma, Nufarm, and Resimac shares are falling today

These shares are having a tough time on hump day. But why?

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Kogan, Monash IVF, OFX, and ResMed shares are falling today

Why are these shares taking a tumble today? Let's find out.

Read more »

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after ASX 200 shares fell rapidly today and appear to be heading into a stock market crash
Share Fallers

Why Appen, DroneShield, Gentrack, and New Hope shares are dropping today

These shares are starting the week in the red. But why?

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.
Share Fallers

Why Dexus, Dusk, Fletcher Building, and Paladin Energy shares are falling today

These shares are ending the week in the red. But why?

Read more »

Couple look at a bottle of wine while trying to decide what to buy.
Consumer Staples & Discretionary Shares

Treasury Wine shares: Buy, hold, or sell? Here's Macquarie's take

What is Macquarie forecasting for Treasury Wine shares amid the CEO’s unexpected exit?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Newmont, NRW, Peet, and Treasury Wine shares are dropping today

Let's find out why investors are selling down these shares on Thursday.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Aristocrat, EBR, GQG, and Insignia shares are tumbling today

These shares are having a tough time on hump day. Let's find out why.

Read more »