Are you looking for the next big growth stock? If so, then two names you'll want to keep a close eye on this year are Babylon Holdings (BBLN) and Matterport (MTTR -0.57%). These stocks have been public for less than a year, but both could be intriguing investments to consider in the healthcare and tech sectors.
Keep in mind that neither of these companies is profitable today -- so you may want to watch them for now -- but with their potential for growth and focus on artificial intelligence (AI), there's plenty of reason to take a closer look as potential additions to your portfolio in 2022.
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1. Babylon Holdings
U.K.-based Babylon Holdings went public through a special purpose acquisition company (SPAC) in October 2021. At a valuation of around $2.4 billion, the healthcare company is still quite small for its industry, but could have significant, long-term potential.
Babylon is a telehealth company that provides both preventative and primary care services to 24 million people across four continents with a particular focus on the U.S. and U.K. At the core is its "Babylon 360" service which promises patients 24/7 access to its healthcare tools and network of healthcare professionals, including doctors, therapists, and dieticians. Patients can also get prescriptions delivered straight to their door. Underlying the whole system is its software, which utilizes AI to help save time and improve efficiency for both doctors and patients.
The company is rapidly growing its business. For 2021, it anticipates that revenue will rise by 305% to $321 million -- and this year it expects to more than double that to $710 million. The bottom line isn't as impressive yet. Babylon anticipates it will post an adjusted (EBITDA) loss of $165 million to $175 million. The cost of delivering care accounts for close to 80% of the company's revenue. And with Babylon still scaling up and incurring higher selling, general & administrative costs (SG&A) -- which now account for 58% of revenue -- it could be awhile before Babylon gets anywhere near profitability.
The growing losses may be why the stock has drifted downward in recent months. But growth investors may at some point be willing to look past the current challenges given the potential ahead for Babylon. It has a key partner in tech company Palantir. The two businesses are working on using data to help improve care for Babylon's members. Babylon CEO Dr. Ali Parsa said recently, "Our partnership with Palantir is enabling us to bring a more integrated and intelligent approach to better understand a person's holistic health and predict their potential future development." The company has also partnered with tech giant Microsoft to explore opportunities related to AI and machine learning.
Both of these partnerships can help improve the company's Babylon Cloud Services platform, which helps patients check their symptoms, what they should be monitoring, and determine the next steps they should take. Adding more data points into the mix and making it smarter will make the platform more useful, and having it available on the Microsoft Azure Marketplace will allow it to reach more users.
Armed with some strong partnerships, Babylon could be a force to be reckoned with. That's why it is an intriguing stock to watch, especially with all the potential growth it has on the horizon.
Image source: Getty Images.
2. Matterport
California-based tech company Matterport also went public through a SPAC. This was in July 2021, a few months earlier than Babylon. At $3.8 billion, its market cap is slightly higher than Babylon's, but also still quite modest in size.
The company helps people and businesses create "digital twins" -- that is, visual representations in the digital world of what currently exists in the physical one. These twins, or models, can also be customized, allowing users to create tags, labels, and guided tours (e.g., a virtual tour of a home). But the business has much more usefulness beyond just real estate.
Matterport has its sights set on creating a massive database with applications for virtually any industry. Like Babylon, Matterport also has a big tech partner -- Meta Platforms. The two companies are creating the world's largest dataset of 3D indoor spaces. Matterport is an excellent example of a business that could have considerable value in the creation of a metaverse, which ARK Invest's Cathie Wood says could be a multi-trillion-dollar opportunity.
Matterport generates the bulk of its revenue (more than half) from subscriptions to its spatial data platform, where users can create digital twins of spaces. Users can create images to convert into 3D models with their smartphones. In addition, the company sells its own 360-degree cameras. Those products together contribute close to one-third of revenue. It also earns more than 10% of its sales from services (e.g., helping people make digital twins) and another 5% from licenses.
Through the first nine months of 2021, Matterport generated $84.1 million in revenue, up 35% over the year-ago period. During that time, it incurred an operating loss of $52.5 million, which was six times the $8.8 million loss it recorded a year earlier -- which may be why its shares are also trading at the low end of their 52-week range.
Like Babylon, Matterport's SG&A costs account for a significant chunk of revenue (88%) and can make profitability a challenge until that comes down. But with the company's cost of revenue a manageable 42% of sales, there's hope at least that as the business grows and expands its top line, the bottom line should also improve.
This isn't the safest stock to own given the steep losses recently, but for investors bullish on the metaverse, Matterport is one to keep an eye on this year as its business show lots of promise.
