Matterport (MTTR +0.00%) bears are out in full force this year as shares of the spatial data company that maps spaces in three-dimensional (3D) formats and makes digital twins have fallen a whopping 80% so far in 2022.
NASDAQ: MTTR
Key Data Points
Matterport had spiked handsomely last year after it made its stock market debut via the special purpose acquisition company (SPAC) route. However, the stock market correction of 2022 has sent Matterport packing. That's not surprising as the sharp slowdown in Matterport's growth and the stiff competition it faces from the likes of Nvidia (NVDA +4.39%) seem to have dented investor confidence in the stock.
Let's look at the reasons why the market has turned bearish on Matterport stock.
The bearish case for Matterport stock
Matterport's growth has fallen off a cliff in 2022. The company finished 2021 with a 29% increase in revenue to $111.2 million. However, its revenue in the first six months of 2022 has remained flat over the prior-year period at $57 million.
Bears will argue that the sharp slowdown in Matterport's growth isn't a good sign. After all, the company operates in fast-growing markets such as 3D mapping and modeling and digital twins. The 3D mapping and modeling market, for instance, is expected to clock 17% annual growth from 2022 to 2027.
Digital twins, which are 3D virtual representations of real-world physical objects, processes, or systems, are gaining terrific traction thanks to the adoption of the metaverse. Grand View Research estimates that the digital twin market could see annual growth of 39% through 2030, hitting $155 billion in revenue at the end of the forecast period.
The rapid growth of the markets that Matterport serves makes the company's slowdown in 2022 look a tad surprising. Bears, however, could argue that Matterport's slowdown could be a result of the competition it faces from more established players such as Nvidia. The tech giant has been expanding into the digital twin market with its Omniverse platform.
Nvidia's digital twin solutions seem to be gaining currency among customers as well. German automaker BMW has already selected Nvidia's Omniverse platform to improve the efficiency of its factories. Siemens is another company that has partnered with Nvidia to use simulations and digital twin solutions and help customers improve the efficiency of their factories. Others such as PepsiCo, Kroger, Lowe's, and Amazon have also opted for the graphics card specialist's offerings to build digital twins.
As such, Matterport is not going to get a free run. A behemoth like Nvidia with a massive net cash pile of over $5 billion and years of expertise in graphics cards will make it difficult for Matterport to gain ground in the lucrative opportunity that it is eyeing.
The bulls may have reasons to cheer
Matterport expects to step on the gas in the second half of 2022. The company has guided for full-year revenue of $135 million at the midpoint of its range, which points toward an increase of 21% over the prior-year period.
Matterport believes that its growth could pick up in the second half of the year thanks to a record order backlog it expects to fulfill during the current quarter, and that should give bulls some optimism. The company's product revenue should improve as it ships more of its Pro2 3D cameras that allow professionals to capture spaces such as homes, hotels, apartments, and commercial buildings.
It is worth noting that 3D cameras could unlock a massive growth opportunity for Matterport in the long run. That's because the demand for such cameras is expected to increase at an annual pace of 33% through 2030. The 3D camera market is currently in its nascent phase, but it is expected to generate $54 billion in annual revenue by the end of the decade as the demand for applications such as digital twins increases.
Additionally, Matterport is building a solid base of subscribers that could help it generate long-term revenue. The company's subscriber base increased 52% year over year in the second quarter to 616,000. Though the number of paid subscribers increased at a slower pace of 21% year over year to 62,000, Matterport could witness an acceleration in the growth of its paid subscriber base as it has 24 billion square feet of spaces captured in 3D using its solutions.
Even better, the growth in Matterport's subscriber base is translating into revenue growth. The company's subscription revenue was up 20% year over year in the second quarter to $18.4 million. The good part is that Matterport is witnessing an increase in the conversion of free to paid subscribers. So, the company's massive pool of free subscribers indicates that its subscription business is built for more growth.
All this explains why analysts are expecting 26% annual earnings growth from Matterport for the next five years, which it could achieve if it keeps growing its paid subscriber base and sells more hardware.
What should investors do?
Matterport stock remains expensive at 9.2 times sales despite its huge drop this year. The S&P 500, for comparison, has a sales multiple of 2.26. So, the stock could drop further if its fortunes don't turn around, giving savvy investors a chance to buy it on the cheap.
Matterport is operating in a market with a lot of promise. That's why investors should keep an eye on the company's results over the next few quarters and consider going long if its top and bottom lines start accelerating.
