Matterport (MTTR 0.85%), a developer of 3D scanning software that creates "digital twins" of physical places, went public last July by merging with a special purpose acquisition (SPAC) company. After hitting an all-time high of $33.05 in November, its stock has since plummeted by more than 80% as investors fret over the company's slowing growth and widening losses.
I recently compared the bear and bull cases for Matterport and concluded that the bears would remain in charge until it scales up its business. But today, I want to focus on three lesser-known facts about this divisive company.
Image source: Getty Images.
1. It's still a camera maker
In 2021, Matterport generated 71% of its revenue from its subscriptions, licenses, and services. The remaining 29% came from its products segment, which generates most of its revenue from its Pro2 3D Camera, which starts at $3,395.
However, Matterport also recently started to sell third-party 3D cameras alongside its pricey Pro2 3D, and it now provides 3D capture apps for iPhones and Android devices. It claims that selling cheaper third-party cameras and reaching more users with its mobile apps will drive increased adoption of its primary software solutions over the long term.
That might be true, but it also raises a troubling question about product cannibalization: Why would customers buy Matterport's expensive cameras when they can buy cheaper devices or simply use their phones?
Matterport's product revenue declined 2% last year to $32.5 million, but the segment's cost of revenue jumped 30% to $26.4 million. Those figures indicate that it might be smarter for the company to phase out its first-party cameras and let its mobile apps and third-party devices do the heavy lifting.
But opening up its platform to more devices could also erode its defenses against competitors like Zillow Group, which provides its own 3D scanning platform, and start-ups like EyeSpy360, Cupix, and Easypano. Therefore, while the gross margins for Matterport's first-party camera business could keep getting squeezed, it's unclear if it will ever exit the segment.
2. Most of Matterport's subscribers are still on free plans
After a user scans a space with Matterport's software, the digital model is uploaded to its cloud-based platform, where it can't be accessed without a subscription. The growth of that platform at first glance looks impressive: The number of spaces under management rose 56% to 6.7 million in 2021, and the number of subscribers rose 98% to 503,000.
However, as of the end of the year, 448,000 of those subscribers were still using Matterport's free tier, which gives users access to one digital twin. That's a 113% increase from 2020. The number of paid users, who pay between $10 to $689 each month to access between five to 300 digital models, increased just 25% to 55,000.
Matterport believes it can convert more of those free users to paid users over time. But until and unless it demonstrates that to be true, it will be burdened with the cloud hosting costs for all of the free data associated with those accounts. That's probably why the company expects its adjusted net loss to more than double this year.
3. It expects larger competitors to swoop in
In its latest 10-K filing, Matterport admits that a lot of its smaller rivals in the spatial data market still suffer from "limited funding," and that "poor experiences" with those competing services could "hamper consumer confidence in the spatial data market and adoption or trust in providers."
At the same time, the company expects some of those competitors to be "acquired by third parties with greater resources." That strongly implies that tech giants like Apple and Alphabet, which have already integrated 3D scanning and augmented-reality features into their mobile operating systems, could threaten Matterport's long-term growth.
On the bright side for shareholders, Matterport could also become a takeover target.
It's still a very speculative bet
Last year, Matterport made a longer-term forecast that it could generate $747 million in revenue in 2025. But in the wake of its slowdown in 2021, it would need to grow its top line at a compound annual rate of 61% from here to hit that target. Analysts expect its revenue to rise just 17% in 2022, and anticipate that it could accelerate to 49% growth in 2023 if it converts more free users to paid ones and overcomes its supply chain challenges.
But trading at 13 times this year's sales, Matterport's stock still isn't cheap enough to be considered undervalued. Cloud communications company Twilio (TWLO 1.47%), which expects more than 30% organic annualized sales growth over the next few years, trades at just 6 times this year's sales. Palantir (PLTR 3.73%), a data-mining firm, is targeting more than 30% revenue growth through 2025 and trades at 12 times this year's sales.
Simply put, Matterport's stock price could be cut in half again in this challenging market for growth stocks before it would be reasonable to consider it a value play. Investors should exercise caution and read the fine print before assuming that Matterport will permanently change how people virtually visit real-life places.
