Matterport (MTTR 0.85%) is a spatial data company that provides software that organizations and individuals use to digitize parts of the physical world to create "digital twins" that can then be incorporated, manipulated, and utilized in a 3D platform. And it's having a terrible 2022 so far: Matterport shares have lost nearly 64% of their value year to date.
The company's record earnings results for 2021, released on Feb. 16, didn't help matters either: Along with rising revenue, it reported a larger-than-expected loss and tepid guidance led investors to press the sell button. Matterport's stock price plunged 17% on the day following its earnings release, as investors panicked at the sight of a slowdown in its growth.
Let's see what spooked Matterport shareholders, and led the stock to its 52-week low of $6.20 per share following the earnings release.
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Matterport's miss triggered a sell-off
Matterport reported fourth-quarter revenue of $27.1 million, up 15% over the prior-year period. The company's non-GAAP (adjusted) loss per share increased to $0.10 from $0.01 in the year-ago period. The numbers were a mixed bag, as analysts were looking for a loss of $0.09 per share on revenue of $25 million.
For the full year, Matterport's revenue was up 29% to $111.2 million, while the adjusted loss increased to $0.23 per share from $0.07 per share in the previous year.
Coming to the guidance for the current quarter, Matterport expects revenue of $26.5 million and an adjusted loss per share of $0.14 at the midpoint of its guidance range.
Analysts were expecting much stronger Q4 revenue growth, as they were looking for $31.8 million in revenue. Wall Street was also anticipating a lower loss of $0.04 per share, but the company is going to miss badly on both fronts, as the guidance suggests. The full-year guidance didn't inspire much confidence either; Matterport's forecast of $130 million in 2022 revenue (at the midpoint) is way off consensus estimates of $160 million.
What's more, the full-year revenue guidance points toward a top-line jump of just 17%, which indicates that Matterport's growth is cooling off from a much faster pace last year. The adjusted loss is expected to balloon to a range of $0.47 to $0.52 per share, which doesn't paint a good picture, considering that Wall Street was expecting $0.23 per share in adjusted loss this year.
The numbers explain why investors shunned Matterport stock following its earnings. But with the stock now trading at 8.7 times sales, compared to the 2021 average of 58, it may be too cheap to ignore for those looking to take advantage of hot tech trends such as the metaverse. As it turns out, a closer look at Matterport's business indicates that there were some silver linings that could lead to a turnaround.
Why the stock is still worth betting on
Matterport classifies its revenue into four streams -- subscriptions, licenses, services, and products. The company is now laser-focused on increasing its revenue from the high-margin subscription business, which produced $61.3 million in revenue last year, accounting for 55% of the top line. For comparison, the subscription business had accounted for 48% of the company's total revenue in 2020.
Matterport's subscription revenue increased 47% in 2021. The company anticipates revenue from the subscription business to increase between 31% and 34% this year. It also sees the subscription business generating 62% of its total revenue in 2022. This bodes well for the company long-term, as the subscription business reported a non-GAAP gross margin of 77% in 2021, compared to the product business's margin of just 24%.
It's also worth noting that Matterport's subscription business has more than doubled in two years. This segment generated $7.5 million in revenue in the first quarter of 2020 and is now expected to generate just over $17 million this quarter. More importantly, Matterport's subscription business could keep growing at a nice clip, considering its huge subscriber base.
The company had a total of 503,000 subscribers at the end of 2021, a jump of 98% over the prior-year period. Its paid subscriber base increased 25% year over year to 55,000 at the end of the fourth quarter of 2021. So, Matterport now has 448,000 free subscribers it can tap to boost its subscription revenue by encouraging them to upgrade to a paid model.
The good news is that Matterport has seen an acceleration in the number of free subscribers buying paid plans throughout 2021. And it won't be surprising to see an acceleration in its free-to-paid conversions as the demand for digital twins increases, thanks to the proliferation of the metaverse.
Don't miss the big picture
The digital-twin market is expected to hit $46 billion in revenue by 2026 as compared to just $7.5 billion in 2020, generating a compound annual growth rate of 35% over a five-year period. The market's growth will be driven by the needs of various verticals like healthcare, automotive, aerospace, and manufacturing, among others.
The needs of the metaverse could provide an additional boost to the digital-twin market. That's because a digital twin is a digital representation of a real-world entity, such as a retail space, a school, or a movie theater. As a result, digital twins are likely to become the building blocks of the metaverse: They'll re-create the physical world in a 3D virtual format, which can then be used by metaverse users to socialize, work, play, or learn, among other things.
This explains why Matterport CEO RJ Pittman recently told Yahoo! Finance that his company has been thinking about the metaverse since the beginning. Matterport is effectively a pick-and-shovel play on the metaverse, and it's in a nice position to tap into this emerging opportunity since it has already digitally captured 208 billion square feet of real-world space for use in its platform. The company points out that it has 6.7 million digitized spaces under management, which is 100 times what any other metaverse-oriented competitor has created.
It won't be surprising to see Matterport step on the gas in the coming years, as it's trying to tap into a $240 billion addressable market, and it has tailwinds such as the metaverse to support its long-term growth. That's why it may turn out to be a good bet for volatility-tolerant long-term investors looking to take advantage of the next big tech trend.
