Is Matterport Stock a Buy Now?

Matterport (MTTR 0.87%) posted its fourth-quarter earnings report on Feb. 22. The 3D spatial mapping company's revenue rose 52% year over year to $41.1 million, which beat analysts' estimates by $1.4 million. Its adjusted net loss widened from $25.1 million to $26.6 million, or $0.09 per share, but still cleared the consensus forecast by a penny.

Matterport's stock price rose slightly after that earnings beat, but it remains nearly 90% below its all-time high from November 2021. Should contrarian investors buy this stock while the bulls are all looking in the other direction?

Image source: Getty Images.

What does Matterport do?

Matterport's hardware and software are used to scan and create "digital twins" of real-world locations. These models are stored on its cloud-based platform, where they can be accessed by external websites and apps. Its free users can access a single digital twin, while its paid users can access additional models.

The iOS and Android versions of Matterport's software allow smartphone users to easily create their own digital twins of homes, offices, and businesses. However, professional users are more likely to use high-end 3D cameras to create those models. Matterport sells its own 3D cameras for that exact purpose, but its software is also compatible with other third-party cameras. It also provides professional scanning services for clients who don't want to use their own cameras.

Matterport's digital twins can be used to provide virtual tours for real estate platforms, virtual reality experiences for travel-oriented companies, and other metaverse-like experiences. But it isn't the only player in this niche market -- larger tech companies like Adobe, Autodesk, and Unity Software have all been adding digital twin services to their platforms. It also faces competition from internally developed tools like Zillow 3D.

How fast is Matterport growing?

Matterport's revenue rose 87% in 2020, but it grew just 29% in 2021 as the supply chain constraints disrupted its production of 3D cameras. That slowdown continued with just 22% growth in 2022, even after it acquired the real estate marketing company VHT Studios to expand its services segment last July.

In 2022 Matterport generated 54% of its revenue from its paid subscriptions, 20% from its professional services, and 26% from its product sales, which mainly consist of its 3D cameras and accessories. Here's how those three core businesses fared over the past year.

Data source: Matterport. YOY = Year over year.

Matterport's growth in subscription revenue decelerated over the past year, even as it continued to gain new subscribers. Its total number of subscribers hit 701,000 at the end of 2022, representing 39% growth from a year ago, as its total spaces under management (stored digital twins) increased 37% to 9.2 million.

However, only a small percentage of Matterport's "subscribers" are actually paying users -- the rest of them are merely free users who eat up its bandwidth with single digital twins. Its total number of paid subscribers rose 16% year over year to 64,000 in the fourth quarter, but that only represented 9% of its total subscribers, compared to 11% in the prior year quarter. That shrinking ratio of paid users to total subscribers suggests Matterport is still struggling to convert its free users to paid ones -- which will become increasingly necessary as its cloud hosting costs continue to rise.

Matterport's services growth accelerated after it acquired VHT and its product sales rose as the supply chain situation improved, but neither of those improvements could offset its softer growth in paid subscriptions.

Another year of decelerating growth

For 2023, Matterport expects its subscription revenue to rise 15%-17% and for its total revenue to increase 12%-24%. It mainly attributes that slowdown to tough macro headwinds in the real estate market, which will likely persist as long as interest rates keep rising.

To make matters worse, Matterport is still deeply unprofitable. Its net loss narrowed from $338 million in 2021 to $111 million in 2022, but analysts are bracing for a wider net loss of $226 million in 2023. It still held $477 million in cash and investments with no debt at the end of the year, but its cash flows will remain negative for the foreseeable future.

With an enterprise value of $540 million, Matterport might seem reasonably valued at three times this year's sales. It might also be a good takeover target for Adobe, Unity, Zillow, or other larger tech and real estate companies that want to profit from the secular growth of the digital twins market.

But until Matterport improves its ratio of paid subscribers, improves its scale, and stabilizes its losses, I simply can't recommend buying its stock -- especially when so many other high-quality growth names are still on sale.