With the holiday season already upon us, you might be wondering what gifts your children would most like to receive. While the newest toy or video game might be at the top of their wish list, why not consider placing shares of Matterport into the proverbial stocking. Setting up a custodial account for your children could leave them pretty well-off in a decade or two.
One solid reason for making Matterport (MTTR 1.74%) part of this holiday season is the company's role as a building block for the metaverse. The metaverse is poised to explode over the next decade, and here's how Matterport is playing a critical role in its growth.
The key to the metaverse
The metaverse is on the way toward becoming a virtual universe, but for that to happen, companies will need to bring physical spaces into the digital world. Matterport recognizes that this transition involves the creation of digital twins -- or digital copies -- of real-world spaces. The company's 3D technology enables rooms and buildings, for example, to be brought into the digital world.
Companies have many use cases for this technology outside of the metaverse. For instance, if a retail business wanted to enhance its e-commerce experience, it could take a 3D photo of its stores and upload it to its website. There, customers could virtually walk through the store, pick out items they wanted, and purchase them. The opportunities for Matterport's products today are endless, which is why the company already has over 6 million 3D digital images of real-life spaces and nearly 440,000 subscribers.
Even though the company does not rely on the growth of the metaverse to succeed, it could benefit greatly if this virtual world took off. After all, if consumers can use Matterport's technology to bring some of the places they love most to the digital world, they will. Additionally, consumers could pay up for companies -- like Six Flags (SIX 2.69%) -- to use Matterport to offer a virtual experience of its theme parks in the metaverse. Not only would this likely bring in lots of extra revenue in the form of virtual tickets that customers buy from Six Flags, but now the company doesn't have to pay for depreciation, injuries, damages, and other in-person costs.
A potential star performer
Matterport's services are in high demand not just domestically but globally -- in 170 countries. This was partially helped by Matterport's efforts to make its services available to everyone. In the third quarter, the company brought its capabilities to Android devices, whereas previously, it was only available on iOS products. By connecting to Android devices, Matterport can expand more in developing countries.
Widespread global adoption has translated into impressive growth. The company grew its Q3 revenue by 10% year over year to $28 million. That might not seem very impressive, but right now, the company is more focused on gaining customers and paying subscribers. This strategy has been widely successful, with spaces under management growing 62% year over year and total subscribers growing 116%. Result: Strong subscription-revenue growth of 36%.
Aside from generating strong user growth, Matterport has not been profitable. The company lost $168 million in Q3, making its net loss 6 times its revenue over the same period. Its free cash flow clocks in at negative $27 million so far this year. Despite revenue growth, its net loss is likely increasing because it is ramping up its sales and marketing spend to acquire customers now. If the company can attract users now and have them pay up later, it could mean that the company's present high expenses will be minimized going into the future as its products get more usage.
This net loss is a major shift from Matterport's profitability in Q3 2020, which could be concerning to many investors. But the company's valuation doesn't seem to reflect these large losses as the stock has grown 188% over the past year. At a $7.6 billion market capitalization and with $107.5 million in trailing 12-month revenue, the company is valued at a whopping 61 times trailing sales. If Matterport can attract users now by spending heavily and incurring losses, it has the potential to retain these customers as they find more needs for the company's products. This heavier adoption would be followed by revenue which could potentially grow faster and offset the expenses in the future. This could push Matterport toward the right side of profitability.
A gift that could keep on giving
Although the company's valuation is sky-high, its market opportunity could be as much as 20 billion spaces under management. This translates to less than 0.1% market penetration. The company is currently investing in sales and marketing to advertise its products to gain adoption and potentially market share for the future. Considering the growth potential in building out the metaverse, Matterport's future looks very promising. But as a young company, it also has obstacles to overcome to achieve profitability, which makes for a "risky business" if it fails to do this. However, whether or not the metaverse is a part of the next 30 years is not an inherent risk for this business because of its current number of use cases.
If the world grows with the metaverse by its side, Matterport could succeed greatly. If it doesn't, Matterport still has tremendous room for growth, which will take time. Because of the long time horizon required, giving shares to a child who won't touch them for a decade or more could be the right move. It could also be life-changing as long as Matterport is able to grow its penetration over the next 10 years.