2 Technology Driven Stocks with Overseas Penetration

  • Aug 16, 2018 AEST
  • Team Kalkine
2 Technology Driven Stocks with Overseas Penetration

Afterpay Touch Group Ltd

Afterpay Touch Group Ltd (ASX: APT) was listed in June 2017 through the merger of Afterpay and Touchcorp. It provides consumers with a unique “buy now and pay later” option, allowing shoppers to split purchases into four payments over eight weeks with the cost covered by retailers through paying a 4% commission. Since the start of the year, APT’s share price appreciated by more than 150% from $6 per share. The rally has been driven by the rapid uptake in Australia and the recent US launch with stronger-than-expected early momentum.

In Australia, the number of customers has grown to more than 2 million in three years. Initial focus on online retailers meant that most of its customers are from the millennial demographic. Recently, APT also began to roll out its proprietary point of sale (POS) solution as part of its in-store programme. It now has ~10,000 shopfronts live with the Afterpay in-store offering. APT’s appeal with the millennials and the increasing availability of Afterpay solutions in physical stores is expected to drive further customer growth in Australia.

APT first announced its plans to enter the US market in January, with the official launch occurring in mid-May. By comparison, there are 60 million millennials in the US, compared to 6 million in Australia. APT chose Urban Outfitters (and its affiliate brands Anthropologie, Free People and Urban) as its launch partner which was viewed favorably by the market. Urban Outfitters is a millennial-focused retailer with sales of US$3bn across stores (67%) and online (33%), equivalent to the total online fashion market in Australia. The initial agreement covers online-only platform. In the first month, APT had $11 million in underlying sales in the US, which took roughly 16 months to achieve in Australia. In early August, APT had 275 merchants with 400 agreements flagged in the last business update by the company. APT’s US share of traffic to its website has been increasing steadily, reaching 18% of total traffic and its Instagram footprint continues to scale as new merchants are added.

APT is positioned for rapid growth in the US and there’s an opportunity for further geographic expansion. Roll out of in-store solutions and deeper penetration of the millennial market should drive continued customer growth potentially justifying the ever increasing company valuation. APT stock was trading at $16.095, down 1.8% on August 16, 2018, market open.

Nearmap Ltd

Nearmap Ltd (ASX: NEA) is a leading provider of aerial imagery to small and medium enterprises (SMEs), corporates and government agencies in Australia. NEA's imagery allows customers to monitor, measure and inspect specific assets remotely on a regular basis. Historically, NEA’s business was built around image capture, but it has spent roughly $110 million over the last several years on its capture capabilities, product development and sales & marketing. As an example, the company invested circa $20 million into its HyperCamera2 technology which it released in April 2017. HyperCamera2 captures high-resolution obliques (aerial imagery taken at 30, 45 and 60-degree view) enabling 3D imagery but also creates surface and terrain models.

According to Geospatial Media Analysis, the global spatial market is estimated at US$300b per annum (including satellite imagery). The global aerial imagery market, which is a subset of the spatial market, is expected to rise from US$6.3b in 2017 to US$10.1b in 2020. In Australia, the aerial imagery market is nascent, with >80% of subscribers to Nearmap having not purchased aerial imagery previously. While the market is competitive, NEA is the only company running a subscription-based, software-as-a-service (SaaS) model, compared to the industry standard of bespoke imagery. Effectively, it provides imagery access through a cloud-based (AWS hosted) MapBrowser interface and offers easy third-party software integration via its application program interface (API) integrations.

NEA’s share price increased ~130% since the beginning of the year. In February, the market was excited by the strong growth in the Australian business and the US business reaching breakeven gross profit, despite sizeable start-up losses. Early signs have been positive, however, with US growth being driven by 2D imaging and increased investment in marketing. More recent results, released in July, demonstrated further sales growth in Australia and building momentum in the US with annual contract values up 41%. New product features and enhancement also improved customer retention. US business is now becoming the largest contributor to group earnings and the market is generally upbeat on the potential of oblique and 3D imagery products to drive growth. Long term growth of the global spatial industry will be supported by Big Data and Artificial Intelligence, enabling better imagery data analysis, prediction and classification of data, and increasing the relevance of NEA’s products.

The stock was up 3.5% to $ 1.490 on August 16, 2018, market open, as the group announced for expansion in New Zealand and this can set it for witnessing another leg of growth. There has been a significant interest from New Zealand customers as per the outcome of its pilot program.

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