This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

Nearmap: Can You Trust Management?

After denying there was any problem, Nearmap (NEA ASX) has now been locked out of 65% of its U.S. sales by an ironclad patent challenge. After paying heavy damages, Nearmap is unlikely ever to be profitable in the U.S. It will mean losing 39% of total revenue and all of the company’s growth. If Nearmap survives, it will return to the small Australian market, where it is losing share.

When the news of the lawsuit broke, Nearmap said “The business remains unaffected.” The market begs to differ: share price fell by nearly 25%.

Australian regulators had halted the stock as soon as we issued our February 10 report warning that this would happen, allowing the company to publish a non-response and push up the stock when the market re-opened. Investors lost out. Insiders won: Non-Executive Chairman Peter James made another AUD$809,497 from selling shares on March 15.

Nearmap upgraded profit guidance after closing on May 4, and shares rose 15% the next day, before the news broke. Eagleview filed its case sometime during the U.S. day on May 4, 2021. Why didn’t management request a trading halt before the open at 10 am in Sydney? Six million shares traded before the halt.

If investors are to recover any value, they need to confront management with tough questions:

  • JCap said that the Eagleview camera system is twice as efficient as Nearmap’s. Is this true? If Nearmap has good technology, why is the company redesigning its camera system?
  • Is Nearmap losing market share in Australia and New Zealand?
  • Why, after seven years in the U.S. market, does Nearmap not lead in at least one segment?
  • What is the company’s future in North America?

The case against Nearmap

U.S. competitor EagleView filed a lawsuit in Utah against Nearmap on May 4, 2021 claiming infringement of their patents for roof estimation, impacting EagleView sales in the insurance, solar, construction, and government sectors.

This litigation revists EagleView’s successful action against Exactware. Initially required to pay $125 mln in 2019, Exactware appealed, lost, and had the damages trebled to $375 mln plus costs estimated at $50 mln because the infringement and litigation were considered wilful and vexatious.

EagleView is relying on two key patents that protect the display of aerial roof estimations and the process for calculating roof measurement.

These two patents are particularly broad in their definition. It does not really matter what process a competitor uses to generate a roof measurement and display: the fact that they do it at all is sufficient to infringe on EagleView’s rights.

We expect Nearmap to counter by saying they don’t produce roof reports and their methodology is sufficiently different. Nearmap will likely claim it uses digital surface models (based on 3D modelling). Our research indicates this method is inaccurate and that it is likely that Nearmap has been relying on a methodology similar to Eagleview’s.

Nearmap has made a clear decision to fight the complaint so we believe the middle
path of a negotiated settlement where Nearmap agrees to say pay a royalty to Eagleview is out of the question. Expect the two parties to expend around $50 mln to slug those details out. Eagleview is now armed with a court-tested patent from the Exactware case.

We expect Eagleview to easily defeat Nearmap in court. Should Nearmap lose they will
be shut out of the $120 mln roof-measurement market and segments of the government sector. Without those sectors, Nearmap will struggle ever to make a profit in the U.S. We believe that Nearmap failed to disclose its patent-infringement risk. Our interviews suggest that Nearmap was aware of the risk of an EagleView patent-infringement action as early as 2019.

We learned in interviews that:

  • EagleView sent letters to insurers to advise them Nearmap was potentially infringing their patent.
  • Nearmap staff were restricted in bidding for federal contracts as there was the potential for patent infringement.
  • According to a former senior manager at Eagleview, “Eagleview’s lawyers issued warning letters to insurers that Nearmap infringes its copyright.”
  • Nearmap has carefully structured business relationships with third parties to attempt to avoid patent infringement.
  • Nearmap has indemnified clients for patent infringement in order to do business with them.

Originally Posted on May 6, 2021

Disclosure: J Capital

© 2021 J Capital Research Limited. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J Capital. Use of this publication by authorized users is subject to the J Capital Authorized User Content Agreement available here. Use of this publication by non-authorized individuals is subject to the J Capital Non-Authorized User Content Agreement available here.

This publication is prepared by J Capital Research USA LLC (“J Capital”), a US registered company. This publication is distributed solely to authorized recipients and clients of J Capital for their general use in accordance with the terms and conditions of a Services Agreement and the J Capital Authorized User Content Agreement available here. Unauthorized copying or distribution is prohibited. If you are reading this publication without having entered into a Services Agreement with J Capital, or having received written authorization to do so, you hereby agree to be bound by the J Capital Non-Authorized User Content Agreement that can be viewed here. J Capital does not do business with companies covered in its publications, and nothing in this publication should be construed as a solicitation to buy or sell any security or product. In preparing this document, J Capital did not take into account the investment objectives, financial situation and particular needs of the reader. This publication is intended by J Capital only to be used by investment professionals. Before making an investment decision, the reader needs to consider, with or without the assistance of an adviser, whether the contents are appropriate in light of their particular investment needs, objectives and financial circumstances. J Capital accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this publication and/or further communication in relation to this document.

Terms of service: By viewing this material you agree to the following Terms of Service. You agree that use of J Capital Research USA LLC’s research is at your own risk. In no event will you hold J CapitalResearch USA LLC or any affiliated party liable for any direct or indirect trading losses caused by any information on this site. You further agree to do your own research and due diligence before making any investment decision with respect to securities covered herein. You represent to J Capital Research USA LLC that you have sufficient investment sophistication to critically assess the information, analysis and opinion on this site. You further agree that you will not communicate the contents of this report to any other person unless that person has agreed to be bound by these same terms of service. If you download or receive the contents of this report as an agent for any other person, you are binding your principal to these same Terms of Service. You should assume that as of the publication date ofour reports and research, J Capital Research USA LLC may benefit from short positions a client has in all stocks (and/or options, swaps, and other derivatives related to the stock) and bonds covered herein, and therefore stands to realize significant gains in the event that the price of either declines. This is not an offer to sell or a solicitation of an offer to buy any security, nor shall J Capital Research offer, sell or buy any security to or from any person through this site or reports on this site. If you are in the United Kingdom, you confirm that you are accessing research and materials as or on behalf of: (a) an investment professional falling within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”); or (b) high net worth entity falling within Article 49 of the FPO. Our research and reports express our opinions, which we have based upon generally available information, field research, inferences and deductions through our due diligence and analytical process. To the best of our ability and belief, all information contained herein is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer. However, such information is presented “as is,” without warranty of any kind, whether express or implied. J Capital Research USA LLC makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. Further, any report on this site contains a very large measure of analysis and opinion. All expressions of opinion are subject to change without notice, and J Capital Research USA LLC does not undertake to update or supplement any reports or any ofthe information, analysis and opinion contained in them. You agree that the information on this website is copyrighted, and you therefore agree not to distribute this information (whether the downloaded file, copies / images / reproductions, or the link to these files) in any manner other than by providing the following link: If you have obtained the research of J Capital Research USA LLC in any manner other than by downloading from that link, you may not read such research without going to that link and agreeing to the Terms of Service. You further agree that any dispute arising from your use of this report and / or the J Capital Research USA LLC website or viewing the material hereon shall be governed by the laws of the State of New York, without regard to any conflict of law provisions. You knowingly and independently agree to submit to the personal and exclusive jurisdiction of the superior courts located within the State of New York and waive your right to any other jurisdiction or applicable law. The failure of J Capital Research USA LLC to exercise or enforce any right or provision of these Terms of Service shall not constitute a waiver of this right or provision. If any provision of these Terms of Service is found by a court of competent jurisdiction to be invalid, the parties nevertheless agree that the court should endeavor to give effect to the parties’ intentions as reflected in the provision and rule that the other provisions of these Terms of Service remain in full force and effect, in particular as to this governing law and jurisdiction provision. You agree that regardless of any statute or law to the contrary, any claim or cause of action arising out of or related to use of this website or the material herein must be filed within one (1) year after such claim or cause of action arose or be forever barred.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from J Capital and is being posted with permission from J Capital. The views expressed in this material are solely those of the author and/or J Capital and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: Forex

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.

trading top