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If I Could Invest in Only 1 Metaverse Stock, This Would Be It

By Jamie Louko – Dec 28, 2021 at 6:45AM

Key Points

  • Matterport’s technology is helping consumers and businesses bring their real-world spaces to the cloud.
  • This has numerous use cases not only for today but for the next decade.
  • While the company is experiencing some hiccups, it is worthy of your watch list.

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Matterport is facilitating the movement from the real world to the metaverse.

According to Google Trends, consumers' search interest in the term "metaverse" has grown 10 times over the past three months, and the term is now widely popular in nearly all 50 states. With so much of the population warming up to the idea of the metaverse, now is the time to look into some stocks that could fuel its growth. 

Out of all the companies that could help grow the metaverse, Matterport (MTTR 0.76%) stands out. It is enabling companies to bring their real-world spaces to the cloud, and the technology could also be used to help consumers bring their homes or other favorite places into the metaverse. Here's why I would look into this metaverse play if I could only choose one.

Person with virtual reality goggles playing a virtual reality game.

Image source: Getty Images.

Matterport's 3D technology is simplistic and can be used on anything from high-quality cameras to your mobile phone. Its 3D capture solution allows you to take images of your space and upload them to the cloud. With this, you can do a wide array of things, including potentially bringing an image of your space to the digital world.

The company has historically relied on the revenue from selling its high-quality 3D cameras, but now that it has made its products available on both Apple (AAPL 0.70%) and Android devices, its subscription revenue is growing rapidly and becoming the primary revenue source. 

The digital movement

What appeals to me about Matterport is that its use cases are extremely vast, including the construction industry and hospitality. The 3D captures (called digital twins) can be analyzed to ensure space optimization in a retail store or looked at to find weaknesses in a building. It can even be used in the insurance space to reduce discrepancies in damage claims. With this optionality, investors in Matterport can still win even without the metaverse.

The metaverse has yet to play out, but Matterport's technology has been widely adopted already. The company has over 439,000 subscribers across these different industries with over 6.2 million spaces under its management. This could be a drop in the bucket if Matterport can capitalize on the metaverse. If billions of people across the world want to bring a digital twin of their favorite park or their local baseball field to the metaverse, that could be a large amount of growth potential for Matterport. 

Another important aspect for Matterport is its global first-mover advantage. The company is the only pure-play that offers this kind of scale for creating digital twins, and it does this across the world. The company operates in 170 countries as far away as Singapore.

A long-term investment

Matterport is starting to see growth ramping up. Now that its software is easily available, the company is seeing strength in its subscription revenue rather than in its hardware. This is for the better because the company's hardware gross margins are just 17% compared to software's 75% margins. But hardware revenue still makes up 30% of its total revenue because it will take time for its subscription revenue to materialize and grow exponentially, so an investment in Matterport should be a very long-term investment. 

This company is also very young. It was founded in 2011, but it has just $27.7 million in quarterly revenue. The third-quarter net loss was more than 600% of its third-quarter revenue, and the company's free cash flow is just as bad. While its subscription revenue will continue compounding over the next few years, it will still be a long time before Matterport is ever near profitability. Because it is early in its life cycle, and a major growth point is still decades away, investors should be going into this investment with a 10-to-20-year time horizon.

An appealing hybrid stock

Even without the metaverse, the company sees an addressable opportunity of $240 billion, and who knows how big the company's opportunity is with that addition. It trades at a high multiple of 66 times 2020 sales, and while this high valuation is absurd when looking at current financials, its valuation is based on the huge opportunity ahead of it. 

The company will face plenty of challenges over the next decade, but if it can successfully capture some of its addressable markets, it could become a multibagger from today's prices. As the company continues to attract and retain subscribers, that high-margin revenue could soar and Matterport could see financials that are magnitudes better than today. 

Investing in the metaverse is a risky bet, but I think that doing so through adding Matterport to a diversified portfolio could be a smart move that provides life-changing returns over the next decade or more. 

Jamie Louko owns Apple. The Motley Fool owns and recommends Apple and Matterport, Inc. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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