Matterport Stock Jumped 8.5% on Friday, Reversing Its Post-Earnings Release Direction

Matterport (MTTR +0.00%) stock gained 8.5% on Friday, which was a reversal of its direction on Thursday, when it dropped 13.8% following the spatial data company's release of its third-quarter results on Wednesday.

Cooler heads prevailed on Friday, as Thursday's sell-off was overdone, in my view. On Thursday, investors appear to have focused on Matterport's overall revenue growth falling short of Wall Street's expectation and management lowering its top-line guidance for the full year.

Image source: Getty Images.

Supply constraints

It's important to consider the "why" for the weaker-than-expected revenue and lowering of full-year guidance. Supply constraints are to blame, not demand for Matterport's products and services, which is robust. This is a critical distinction, as pandemic-driven supply chain bottlenecks will eventually end, or at least further subside.

And, based on information management shared on the earnings call, the company seems to be doing a good job handling the challenge of ramping up its hiring in a tight labor market. That's all investors can ask, as the U.S. labor shortage issue, particularly for tech talent, is beyond management's control.

Moreover, as I emphasized in my earnings preview, "subscription revenue is key" and should be "investors' main focus." And Matterport did well in this respect, with subscription revenue jumping 36% year over year.

For investors not familiar with Matterport, it went public in July via a special-purpose acquisition company. Its platform enables users to create 3D replicas of physical spaces, or "digital twins." As I wrote earlier this week, "it seems quite possible that Matterport could benefit from Meta's focus on the metaverse. The two companies are already partners." Meta refers to Meta Platforms (FB +4.39%), Facebook's new corporate name.

Now, let's look at Matterport's third-quarter results.

Matterport's key numbers

Data sources: Matterport and Yahoo! Finance.

The huge net loss stems mainly from the company becoming publicly traded. Therefore, investors should focus on the metrics that are adjusted for one-time items.

Wall Street was looking for an adjusted loss of $0.07 per share on revenue of $29.1 million. So, Matterport slightly exceeded the bottom-line expectation but missed on the top line. On the earnings call, CFO JD Fay said that the company's product revenue (from sales of its cameras) came in lower than management had originally projected due to the supply constraints previously discussed.

He estimated that the company's inability to fully meet demand hurt revenue by about $1.3 million. So, absent the supply constraints, revenue would have been about $29 million -- or in line with Wall Street's expectation.

For context, in the second quarter, the company's revenue increased 21% year over year to $29.5 million. Growth was driven by a 53% year-over-year surge in subscription revenue to $15.3 million. Net loss was $6.2 million, or $0.62 per share, compared to a net loss of $3.7 million, or $0.47 per share, in the year-ago quarter.

Revenue breakdown

Revenue growth was driven by a 36% year-over-year jump in subscription revenue to $15.7 million, a 4% increase in product revenue to $8.6 million, and a 41% surge in services revenue to $3.3 million. License revenue fell to $118,000 from $3.0 million.

The decline in licensing revenue is not a reason for concern, as it is "lumpy" from quarter to quarter. Moreover, Matterport has been actively transitioning its business to one focused on subscriptions, which generate recurring revenue.

This transitioning to a subscription-based business model is progressing well. In the third quarter, subscription revenue accounted for 57% of total revenue, up from 46% in the year-ago period. Total subscribers soared 116% year over year to 439,000, and paid subscribers jumped 35% to 53,000.

Matterport's Q3 net dollar expansion rate was 114%, meaning that existing subscribers expanded their spending with the company by an average of 14% year over year. This metric is down from last quarter's record high of 132%, but it's above the company's historic growth rate of about 110%, Fay said on the earnings call.

What management had to say

Here's part of what CEO RJ Pittman said in the earnings release:

We made significant advances in all of our objectives, including strategic product launches, key industry partnerships, expanded service offerings, and the scaling of our global workforce to address the huge opportunity ahead. ... Our recent launch of Matterport for Android is very timely, and dramatically expands our reach for digitizing spaces using just the phone in your pocket, while giving us an important advantage to our global growth plans for Asia Pacific, Europe, the Middle East, and Africa.

Full-year guidance lowered

Management lowered its full-year guidance primarily due to its desire to be cautious in light of the uncertainty surrounding supply chain challenges. Here's the updated 2021 guidance:

• Revenue in the range of $107 million to $110 million, down from prior guidance of $120 million to $126 million. The updated guidance represents annual growth between 24% and 28%.
• Adjusted loss per share between $0.21 and $0.25, which is narrowing at the lower end of its prior outlook range of $0.17 to $0.25.

Potentially a big long-term winner

The key thing to keep in mind is that Matterport doesn't have an issue with demand, but with supply. Demand for its products and services remains robust. Management seems to be doing a commendable job handling macroeconomic issues that are beyond its control.

The company's platform and expertise have the potential to play a significant role in building the metaverse. So, if you're an investor comfortable with buying shares of companies that aren't yet profitable, Matterport deserves a spot on your watch list.