The metaverse is a hot topic right now. The concept has captured the imagination of Facebook owner Mark Zuckerberg, who’s gone all in on the idea that virtual and augmented reality will become this decade’s answer to social media.
However, while some critics suggest that progress on the technology has stalled, one metaverse-adjacent company is proving otherwise.
Indeed, Matterport, the spatial data specialist, reported a record-breaking fourth quarter of 2022. The business posted growth in its services division of 122% and, having unveiled a beta integration with Amazon’s TwinMaker, also announced it had been chosen to build John Deere’s “virtual Operations Center.“
With such high-profile clients and rapid expansion, the firm’s prospects are looking good. However, there are signs that headwinds are on the horizon, and some aspects of MTTR’s business are underperforming. But could a collaboration with Zuckerberg’s Meta save the day – and if so, is Matterport stock a buy?
At The Forefront Of Change
Matterport is a revolutionary, all-in-one 3D data service that captures, connects, and creates immersive digital twin models for indoor and outdoor spaces.
The company claims to enjoy the first-mover advantage in a new and fast-moving industry, boasting a fortress-like portfolio of essential commercial patents.
Requiring little to no training to use, the firm’s platform facilitates realistic and interactive ways to explore locations. This makes Matterport a powerful tool for businesses of all sizes, allowing them to curate stunning virtual tours and experiences without the cost and hassle of traditional photography.
Recent Business Highlights
The company’s fourth-quarter earnings card turned out to be a record-breaking one for the Sunnyvale, California-based business. Revenues soared 52% to $41.1 million, while product sales jumped a massive 107% year-over-year.
Total subscriptions also rose 39%, with revenue from fee-paying customers growing 17% to $19.3 million. Despite the firm’s GAAP and non-GAAP loss per share of $0.21 and $0.09 respectively, this did come in at the high end of Matterport’s own guidance range.
Refreshingly, however, the business has a strong balance sheet, with no debt and $477 million in cash and investments.
A Great Company – But What’s The Catch?
Matterport continues to deliver solid business results for the enterprises that employ its services.
For example, digital twin modeling can help firms increase their sales by 14%, while commercial real estate agents are seeing an 85% reduction in overall transaction time.
That said, although the operational side of the venture appears robust, it’s still not clocking up the improvements in key metrics that most investors want to see.
To illustrate this point, look at MTTR’s paid subscriber growth. The company witnessed a 25% uptick in customers from Q4 2020 to the equivalent period in 2021, but this tanked to just 16% in 2022.
Moreover, total subscriber growth, both paying and non-paying, is slowing year-on-year – which could be a big problem going forward. Subscription revenue is where the recurring cash for the business is generated, and, for a firm like Matterport, this is the lifeblood on which it either survives or dies.
And there are other issues too. While MTTR sports excellent margins on the subscription side of its business – it made total yearly revenue of $73.8 million on a cost of $24.3 million – that’s not the case with every segment.
In fact, its product division registered a top line of $13.6 million in the last quarter but needed to pay out $16.7 million to achieve that sum. This means its margin here was negative 23% – in other words, Matterport was losing money with every hardware sale it made.
Facebook: The Missing Catalyst?
One important source of hope for MTTR is its relationship with Facebook’s parent company, Meta.
Indeed, the two firms have collaborated on a project that will create the “world’s largest dataset of 3D space for academic research.” The so-called Habitat-Matterport 3D Research Dataset (HM3D) is expected to advance embodied AI learning that could eventually train robots and virtual AI assistants to better understand and interact with the natural, physical world around them.
While HM3D is free for academic and non-commercial research, there’s no reason why further iterations of the dataset should stay that way. In fact, if the agreement is a success, there’s a high likelihood it will also find favor among paying customers too.
On top of that, the alliance between Matterport and Facebook is a validation that the firm is creating something attractive to businesses working within the metaverse paradigm. And this, more than anything, could be the catalyst that powers MTTR’s fortunes for many years to come.
Is Matterport Stock a Buy?
With the stock down 91% from its post-float highs, Matterport remains a contrarian play.
However, the company believes there’s a vast, unpenetrated market worth $240 billion to be tapped – and, with major blue chip customers like Airbnb already on its books, there’s no business better positioned to take advantage of this.
Indeed, if MTTR can hit the $169 million revenue target it’s predicted for 2023, that would beat the expansion the firm registered in 2022.
And the signs are there it can. Its R&D and general administration expenses decreased during the last period, signaling to the market that it’s on the right path.
Whether that means Matterport is a buy or not is up to you. It’s trading at a forward price-to-sales multiple of 6.35 at the moment – which isn’t bad for an organization still growing at the pace it is.
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