Long-term investors should pay little attention to Wall Street analyst price targets, since these targets are only based on a one-year time horizon. However, when an analyst is projecting incredible upside in just one year alone, it might be worth taking a look at the stock. Wedbush analyst Daniel Ives set a price target of $38 on Matterport (MTTR 175.86%), implying 481% upside from the stock price as of this writing.
Matterport's 3-D cameras have allowed over 500,00 subscribers to capture images of over 6.7 million spaces. These images can then be sent to the cloud as "digital twins" of the physical spaces, and businesses can analyze them to optimize the spaces or share them with potential customers. This technology is appealing for those looking to create 3-D images of real-life spaces to bring to the metaverse with them, which is why this company has serious growth potential. If it can capitalize on the growth of the metaverse, Matterport could be a big winner over the next decade.
Image source: Getty Images.
An underwhelming fourth quarter
Matterport went public via SPAC in July 2021, and since then shares have had a rough ride. Shares jumped as high as $32 in late November, but have since been freefalling. Today, the company trades at $6.50 -- almost 40% lower than its SPAC price. This has brought its valuation down to about 14 times sales -- a decent valuation for a company that has a good chance of benefiting from the future metaverse. For reference, another company that is looking to benefit from the metaverse, Unity Software (U), trades at 26 times sales.
However, the company's Q4 results were underwhelming. When Matterport initially went public, it believed it was going to reach $123 million in 2021 revenue. In reality, it only reached $111 million. For 2022, the company believed it would reach $202 million, but in Q4 the company guided for 2022 revenue to reach just $130 million -- almost 36% lower. This now begs the question: If Matterport is not achieving these initial estimates now, how is it going to reach the estimates of $747 million by 2025? This caused some investors to head for the exit.
The silver linings
Growth was still strong for Matterport in its fourth quarter, albeit not as strong as some investors had hoped. Its software subscription -- the company's largest and highest-margin business -- grew 32% year-over-year. The company subscriber base also almost doubled year-over-year, surpassing 500,000.
There were other important highlights over the year for the company. It announced that its product can be used on Android devices, where it had previously been only available on IOS devices. This makes it easy for anyone to create digital twins of their spaces, which will allow users to easily bring their spaces to the metaverse when the time comes. Accessibility for the average person will be critical in gaining metaverse adoption, so the fact that you and I can easily use Matterport's services is a great opportunity going forward.
Even if the metaverse does not pan out, however, Matterport has very strong roots in real-life industries. The company is used heavily in the real estate space where brokers can use Matterport's images to showcase places for sale. Redfin (RDFN 0.77%), for example, uses Matterport to showcase homes it is selling, and the company can even offer 3-D virtual tours with Matterport's images.
The road ahead
The company has plenty of obstacles ahead, however. The major risk is that it is unprofitable and burning cash. In 2021, the company lost over $338 million -- more than triple the revenue it brought in -- and burned almost $47 million in free cash flow. This cash burn jumped 450% year-over-year, so while it has no long-term debt and over $300 million in cash and investments on the balance sheet, the company's losses are something to monitor closely.
Investing in Matterport is not for the faint of heart, but its potential to succeed in building the foundation of the metaverse is extremely appealing. The company now trades at some of the lowest prices it has seen since comping public, and many investors, like Wedbush analyst Daniel Ives, have high hopes for the company. If you can hold Matterport in a diversified portfolio of stocks for the next decade or two, this company has the potential to be one of your biggest winners if it can become one of the primary tools that consumers use to build out the metaverse.
