GoPro (GPRO -1.12%) and Matterport (MTTR 0.87%) both carved out niches in the commoditized camera market with their unique products and services. GoPro's action cameras enable people to record a wide variety of activities, and it backs up all that content on its cloud-based platform.
Matterport's 3D-scanning cameras enable businesses to scan "digital twins" of physical environments for online tours or VR applications. Like GoPro, Matterport stores that content on its own cloud-based platform.
Image source: Getty Images.
GoPro's stock hit an all-time high of $93.85 nearly eight years ago, but it now trades at about $5 a share. Matterport's stock closed at its all-time high of $33.05 last November, but it now trades at less than $4. Let's see what happened to these two innovative camera makers, and if either beaten-down stock is primed for a long-term rebound.
GoPro learned some painful lessons
When GoPro went public in 2014, its action cameras were flying off the shelves. But over the next few years, its camera sales tumbled for three reasons: cheaper competitors entered the market, smartphone cameras improved, and its core users weren't upgrading their older cameras.
Between 2015 and 2019, GoPro's annual revenue declined from $1.62 billion to $1.19 billion. Its annual shipments plunged from 6.6 million to 4.3 million during that period, while its gross margin fell from 42% to 35%.
As GoPro's sales declined, it diversified its business with cheaper cameras, VR camera rigs, and drones. But those devices merely squeezed its margins without boosting its sales, so it eventually discontinued those products and focused on its flagship Hero cameras and 360-degree Max cameras instead. It also tried to lock in more users by expanding its subscription service -- which provides unlimited cloud-based storage, free camera replacements, and exclusive discounts for $50 a year.
GoPro's revenue fell 25% to $892 million in 2020 as more people stayed home during the pandemic, but its gross margin held steady at 35%. In 2021, its revenue surged 30% to $1.16 billion as those headwinds faded, and its gross margin expanded to 41%. It also generated a net profit of $371 million, compared to its net loss of $67 million in 2020. Its number of subscribers also more than doubled to 1.6 million for the full year.
That post-pandemic recovery was encouraging, but analysts expect GoPro's revenue to rise just 2% to $1.19 billion this year as its net income tumbles 78% to $82 million. That slowdown can be attributed to the impact of inflation on discretionary purchases and tougher competition. In August, it predicted it would only ship 2.9 million to 3.1 million camera units in 2022, compared to 3.15 million in 2021 and its previous target of 3.2 million.
Matterport faces an existential crisis
Matterport went public by merging with a SPAC (special purpose acquisition company) last July. But like many other SPAC-backed companies, Matterport overpromised and underdelivered.
During its pre-merger presentation, Matterport predicted its annual revenue would jump from $46 million in 2019 to $123 million in 2021, then rise 65% to $203 million in 2022. However, its revenue only reached $112 million in 2021, and it only expects 19%-24% growth to $132 million-$138 million this year -- and that's only after factoring in its recent acquisition of the real estate marketing company VHT Studios. Prior to that purchase, Matterport had only expected its revenue to rise 12%-21% for the full year. It mainly blamed that slowdown on supply chain disruptions for its camera business.
However, Matterport's subscription-based cloud platform, which generated 62% of its revenue in the first half of 2022, also isn't as large as its seems. Matterport said it served 616,000 "subscribers" in its latest quarter, but 554,000 of those subscribers were still using its free plan, which grants remote access to a single digital twin. It only generated revenue from the 62,000 subscribers that paid for the storage of additional digital models.
That high mix of free users raises Matterport's cloud hosting fees without boosting its revenue. This pressure, along with its sluggish sales of lower-margin cameras, caused its gross margin to plunge 20 percentage points year over year to 41% in the first half of 2022. Matterport had originally told investors its gross margin could approach 60% in 2022.
Matterport believes it can resolve the camera business' supply chain issues in the second half of 2022, but other macro headwinds could curb the market's demand for digital twins of physical properties. Other larger competitors -- including Adobe and Unity -- have also been expanding into the digital twin market. As a result, analysts expect the company to remain deeply unprofitable for the foreseeable future.
GoPro is clearly the better buy
GoPro trades at just five times forward earnings and less than one times this year's sales. Matterport still trades at eight times this year's sales. I wouldn't rush to buy either of these out-of-favor stocks right now. But if I had to choose one, I'd definitely buy GoPro because its growth rates are more stable, its ecosystem is stickier, and its stock is much cheaper.
