Matterport (MTTR 0.93%) was a red-hot stock last year. The developer of 3D spatial mapping tools went public by merging with a special purpose acquisition company (SPAC) last July, started trading at $14.42 on the first day, then rallied to an all-time high of $33.05 last November.
But over the past four months, Matterport's stock has plummeted to about $8 as investors have fretted over its slowing revenue growth, lack of profits, and high valuation. The broader retreat from higher-growth tech stocks, which was mainly caused by macro headwinds, accelerated that sell-off.
Is it time to give up on Matterport, or is it finally the right time to buy this volatile stock? Let's review the bear and bull cases to decide.
What the bears will tell you about Matterport
The bears will point out that Matterport's growth is decelerating at an alarming rate. Its revenue rose 87% to $85.9 million in 2020, but grew just 29% to $111.2 million in 2021. It expects to generate $125 million to $135 million in revenue in 2022, which would represent just 12% to 21% growth.
In a presentation last year, Matterport claimed it could generate $747 million in annual revenue in 2025. But to hit that goal, it would need to grow its revenue at a compound annual growth rate (CAGR) of 61% between 2021 and 2025, which seems highly unlikely at its current growth rates.
Matterport's losses are also staggering. On the basis of generally accepted accounting principles (GAAP), its operating loss widened from $11.6 million in 2020 to $147.8 million in 2021, while its net loss widened from $14 million to $338.1 million.
On a non-GAAP basis, which excludes its stock-based compensation and other one-time expenses, its net loss widened from $11.5 million to $46.9 million. It expects its non-GAAP net loss per share to more than double again in 2022.
Even after tumbling about 75% from its all-time high, Matterport still has a market cap of $2.3 billion, which values the company at about 18 times this year's sales. Unity Software (U 2.21%) -- which Matterport compared itself to in its investor presentation -- trades at 19 times this year's sales but expects to grow its revenue by at least 30% annually for the next few years.
What the bulls will tell you about Matterport
The bulls will point out that Matterport's decelerating growth wasn't actually caused by soft demand for its 3D spatial mapping services.
During its latest conference call, chief financial officer JD Fay said Matterport "could not satisfy all the demand" for its products in light of the "global supply chain constraints." Fay also pointed out the company was entering the first quarter of 2022 with one of its "largest backlogs ever."
Matterport's subscription gross margin expanded nearly 400 basis points to 76% in 2021, which indicates that pent-up demand still gives it plenty of pricing power in its niche market. Those higher-margin subscriptions also accounted for the majority of its top line for the first time in 2021. The rest of its revenue mainly comes from licenses, services, and 360-degree cameras.
Matterport's total number of subscribers also rose 98% year over year to 503,000 in the fourth quarter, while its spaces under management (which are scanned and stored on its cloud platform) grew 54% to 6.7 million.
The bulls believe Matterport's slowdown is temporary, and that its growth will accelerate again as its supply chain and labor constraints ease. They also believe the ongoing expansion of its workforce -- which caused its operating expenses to spike 249% in 2021 -- will enable it to satisfy the market's demand for its services and work through its backlog a lot faster.
Based on that belief, analysts expect Matterport's revenue to rise more than 50% in 2023. With $670 million in cash and investments, it can still afford to absorb a few more quarters of losses as it gets its act together.
Ultimately, the bulls believe Matterport's challenges are transitory, and that more industries will scan "digital twins" of real world locations -- including offices, houses, and stores -- for their virtual- and augmented-reality applications. As an early mover in this nascent market, the company could benefit from that secular trend or become an attractive takeover target for larger, metaverse-oriented tech or real estate companies.
Which argument makes more sense?
Matterport isn't doomed yet, but it still needs to prove that its near-term slowdown is temporary. Its business model is still wobbly, its stock is too expensive, and its high debt-to-equity ratio of 1.7 makes it even less appealing as interest rates rise. I'm keeping my eye on Matterport, but the bears will likely remain in charge until it successfully scales up its business and generates accelerating revenue growth again.