With Roblox (RBLX -0.46%) and Meta Platforms' (FB) focus on the metaverse, there has been an increasing amount of attention paid to one company that is literally building it out. Matterport (MTTR -1.70%) is bringing rooms, houses, and spaces to the cloud by digitally mapping them.
After Facebook changed its name to Meta, shares of Matterport have soared nearly 22%. While this name change does not impact the long-term outlook of Matterport, it suggests that the relationship between Matterport and the foundation of the metaverse is tightly knit. With the company reporting earnings on Nov. 2, it might be time to look at how this business is helping build out the metaverse.
Bringing real life to the cloud
Meta CEO Mark Zuckerberg has described the metaverse as a universe of interconnected virtual communities. It will be a world where you can live a virtual life, connected with real-world people. Here, you can do everything you typically do in your real life and more. On Roblox -- a video game company that is creating a form of the metaverse -- singer Lil Nas X held a concert in the middle of the COVID-19 pandemic. While nobody would have been able to attend if it were in real life, over 33 million people watched the concert on Roblox.
Matterport is helping create this "doppelganger universe" by enabling businesses to digitally capture a 3D image of their spaces and put it on the cloud. Quite literally, Matterport is helping businesses create digital twin spaces. Matterport customers can easily map their space with their phones and upload their space to the cloud.
This process allows customers to have insight into their spaces. Customers like real estate company Redfin can map and upload 3D images of listings. Matterport allows retail customers to walk through stores digitally and buy clothes on the spot. This ability to capture a virtual space and upload it now allows the real world to be mapped virtually, creating endless opportunities.
Growth larger than life
The potential that Matterport carries has attracted large customers like Redfin and partners like Meta -- where Meta and Matterport will collaborate to create the largest portfolio of 3D spaces for academic research. With the company reporting earnings this week, monitoring two key parts of the business will be crucial.
First, the company will need to see increased adoption sequentially. In the second quarter of 2021, the company had 5.6 million spaces under management, along with 404,000 subscribers. These figures increased 75% and 158% year over year, respectively. It will be critical that these two metrics continue growing rapidly -- which would show that Matterport's services are being adopted by the broader public. The company's net revenue retention in Q2 2021 was 132%, which is very strong, and has been relatively stable since the start of 2021. Maintaining this figure would also show increased adoption, validating the company's business and its ability to be a part of the foundation of the metaverse.
The second part of the business to monitor is its path to profitability. In Q2 2021, the company lost 21% of revenue -- $6.2 million -- which was worse than Q2 2020's loss of 15% of revenue. This increase in net loss was primarily caused by a 57% increase in operating expenses. Matterport is not producing free cash flow -- burning $6.2 million in free cash flow in the first six months of 2021 -- so it is important that the company shows an ability to turn its losses around. The company did not provide Q3 guidance, but its increasing gross margin -- which grew from 53% in Q2 2020 to 60% in Q2 2021 -- and adoption of Matterport's products could allow the business to grow its revenue faster than its expenses, putting it on the path toward profitability.
What does the future hold?
The opportunities to digitize the world are immense. Matterport projects that there are 20 billion spaces across 4 billion buildings that could be brought to the cloud. As more spaces are duplicated, it would make the metaverse stronger and more appealing to customers. If the company were to charge just $1 to maintain a digital copy of a customer's space each month, the company could be able to make more than $280 billion annually.
With so many use cases, the company has the potential to see tremendous adoption as the metaverse materializes. If you are interested in investing in the metaverse, watching this company's upcoming earnings and taking a stake could pay off years from now.