Matterport (MTTR -3.15%) released its fourth-quarter earnings report on Feb. 22. The 3D spatial mapping company’s revenue rose 52% year over year to $41.1 million, beating analyst estimates by $1.4 million. Adjusted net loss increased to $26.6 million, or $0.09 per share, from $25.1 million, but still beat the consensus forecast by a penny.
Matterport’s stock price edged up slightly after that earnings surge, but remains nearly 90% below its all-time high set in November 2021. Should contrarian investors buy this stock while the bulls are all looking the other way?
Image source: Getty Images.
What does Matterport do?
Matterport hardware and software is used to scan and create “digital twins” of real-world locations. These models are stored on its cloud-based platform, where they can be accessed by external websites and apps. The free users can access a single digital twin, while the paid users can access additional models.
The iOS and Android versions of Matterport’s software enable smartphone users to easily create their own digital twins of homes, offices, and businesses. However, professional users tend to use high-end 3D cameras to create these models. Matterport sells its own 3D cameras for this very purpose, but its software is compatible with other third-party cameras as well. It also offers professional scanning services for customers who don’t want to use their own cameras.
Matterport’s digital twins can be used to provide virtual tours for real estate platforms, virtual reality experiences for travel-focused businesses, and other Metaverse-like experiences. But it’s not the only player in this niche market — larger tech companies like Adobe, Autodesk, and Unity Software have all added digital twin services to their platforms. It also competes with internally developed tools like Zillow 3D.
How fast is Matterport growing?
Matterport’s revenue grew 87% in 2020, but grew just 29% in 2021 as supply chain constraints disrupted production of 3D cameras. That slowdown continued, with growth of just 22% in 2022, even after the company acquired real estate marketing firm VHT Studios last July to expand its services segment.
In 2022, Matterport derived 54% of its revenue from its paid subscriptions, 20% from its professional services, and 26% from its product sales, which consist primarily of its 3D cameras and accessories. This is how these three core businesses developed over the past year.
Metric
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Subscription Revenue Growth (YOY)
32%
24%
20%
21%
17%
Services Revenue Growth (YOY)
69%
48%
74%
204%
122%
Product Sales Growth (YOY)
(22%)
(10%)
(45%)
5%
107%
Total Revenue Growth (YOY)
15%
6%
(3%)
37%
52%
Data source: Matterport. YOY = year over year.
Matterport’s subscription revenue growth slowed over the past year, although the company continued to add new subscribers. Total subscribers reached 701,000 at the end of 2022, a 39% year-on-year growth as the total number of managed spaces (stored digital twins) increased by 37% to 9.2 million.
However, only a small percentage of Matterport’s “subscribers” are actually paying users — the rest of them are just free users eating up their bandwidth with individual digital twins. Total paid subscribers grew 16% year over year to 64,000 in the fourth quarter, but that represented just 9% of total subscribers, compared to 11% in the year-ago quarter. This shrinking ratio of paid users to all subscribers suggests that Matterport is still struggling to convert its free users to paid users — something that’s becoming more necessary as cloud hosting costs continue to rise.
Matterport’s services growth accelerated after the VHT acquisition and its product sales rose as supply chain conditions improved, but none of these improvements offset weaker paid subscription growth.
Another year of slowing growth
For 2023, Matterport expects its subscription revenue to grow 15% to 17% and its total revenue to grow 12% to 24%. She attributes this slowdown mainly to the harsh macroeconomic headwinds in the housing market, which are likely to persist as long as interest rates continue to rise.
To make matters worse, Matterport is still deeply unprofitable. Net loss narrowed to $111 million in 2022 from $338 million in 2021, but analysts expect a larger net loss of $226 million in 2023. At the end of the year, the company still held 477 Millions of dollars in cash and investments with no debt, but its cash flows will remain negative for the foreseeable future.
With an enterprise value of $540 million, Matterport appears fairly valued at three times this year’s revenue. It could also be a good acquisition target for Adobe, Unity, Zillow, or other larger tech and real estate companies looking to capitalize on the long-term growth of the digital twin market.
But until Matterport improves its paying subscriber share, improves its size, and stabilizes its losses, I just can’t recommend buying its stock — especially when there are so many other high-quality growth stocks on offer.
Leo Sun has held positions at Adobe and Unity Software. The Motley Fool has positions in and recommends Adobe, Autodesk, Matterport, Unity Software, and the Zillow Group. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.
