Is It Too Late to Buy Matterport Stock?

Matterport's (MTTR -0.57%) stock surged 15% to a three-month high after the 3D spatial mapping company posted its second-quarter earnings report. Its revenue declined 3% year over year to $28.5 million, which missed analysts' estimates by $1.9 million.

Its adjusted net loss widened from $5.6 million to $35.3 million, or $0.12 per share, but it still beat the consensus forecast by two cents. On a GAAP (generally accepted accounting principles) basis, its net loss widened from $6.2 million to $64.6 million. Those headline numbers were messy, but investors spotted a few green shoots in its earnings report. Let's review what Matterport does, why the bulls are interested again, and if it's too late to chase this volatile stock after its post-earnings rally.

Image source: Getty Images.

Matterport's business model

Matterport's software enables its customers to scan "digital twins" of real-world spaces with 3D cameras. It then stores these twins on its cloud-based platform, where they can be accessed for browser-based tours, virtual reality experiences, or other applications.

Matterport operates a freemium model, which allows free users to access a single digital twin and paid users to access more spaces. During the second quarter, the company generated nearly 65% of its revenue from these paid subscriptions. Another 18% came from its dedicated capture services, which help its customers professionally scan their physical spaces.

Matterport also sells its own high-end 3D cameras, which enable customers to scan their own spaces. These devices generate most of the product revenue, which accounted for 18% of its top line. It also provides a mobile scanning app for iOS and Android devices.

How fast is Matterport growing?

Matterport's unique business model initially turned a lot of heads when it went public by merging with a special purpose acquisition company (SPAC) last July. The combined company's stock started trading at $14.42 on the first day, hit an all-time high of $33.05 last November, but now trades at about $6. 

The bulls retreated because Matterport's growth decelerated. Its revenue rose 87% in 2020, but grew just 29% to $111.2 million in 2021 as supply chain headwinds throttled its production of 3D cameras. In the first half of 2022, its revenue only increased 1% year over year to $57.0 million.

Data source: Matterport. YOY = Year over year.

Matterport's camera business continues to struggle with supply constraints, but CEO RJ Pittman said the business still had a "record order backlog" which it expected to fulfill in the third quarter.

As for its subscription business, Matterport's total number of subscribers increased 10% sequentially and 52% year over year to 616,000. However, 554,000 of those subscribers were still using its free plans -- so it actually only generated revenue from 62,000 paid subscribers. However, its net dollar expansion rate -- which measures its year-over-year revenue growth per existing customer -- remained stable sequentially at 107%.

For the full year, Matterport now expects its revenue to increase 19%-24%, compared to its prior guidance for 12%-21% growth. That higher guidance attracted some attention from the bulls, but it also factors in its recent acquisition of the real estate marketing company VHT Studios.

If we look past that purchase, Matterport actually reduced its full-year subscription revenue guidance from 31%-34% growth to just 19%-21% growth. It attributed that slowdown to its delayed shipments of cameras, which typically lock in more paid customers, as well as a higher mix of larger enterprise contracts, which take a longer time to recognize as subscription revenue.

Is Matterport's business sustainable?

Matterport is still deeply unprofitable, and its gross margin plunged from 61.2% to 41.4% between the first six months of 2021 and 2022. A large portion of that decline can be attributed to its struggling camera business, but its pricing power could also remain limited as other larger companies -- most notably the game engine developer Unity Software (U -2.31%) -- expand into the digital twin market. Its operating expenses will also remain high as it supports a growing number of free subscribers.

As a result, Matterport expects its adjusted net loss per share to widen from $0.23 per share in 2021 to $0.46-$0.50 in 2022. It won't go bankrupt anytime soon, since it was still sitting on $562 million in cash and investments without any debt at the end of the second quarter, but it also hasn't proven that it can ever turn a profit.

Is it too late to buy Matterport's stock?

Matterport still trades at 12 times this year's sales. Unity, which expects to grow at a similar rate, trades at the same price-to-sales ratio. However, Unity believes it can achieve non-GAAP profitability by the fourth quarter of 2022 -- while Matterport continues to swim in red ink.

Therefore, I think it's still too early -- instead of too late -- to buy Matterport. Investors should wait to see if it can stabilize its revenue growth and narrow its losses before betting on a long-term turnaround.