Shares of Matterport (MTTR 0.86%) gained 6% on Wednesday, following the digital-twin platform operator's release on the prior afternoon of its first-quarter 2023 results.
The stock's rise is largely attributable to the quarter's revenue and earnings exceeding the Wall Street consensus estimates, along with management increasing its full-year 2023 guidance for the top and bottom lines.
Matterport's key numbers
| Metric | Q1 2022 | Q1 2023 | Change YOY* |
|---|---|---|---|
| Revenue | $28.5 million | $38 million | 33% |
| GAAP operating income | ($84.9 million) | ($56.8 million) | Loss narrowed 33% |
| GAAP net income | $71.9 million | ($53.8 million) | Flipped to negative from positive |
| Adjusted net income | ($27.9 million) | ($20.5 million) | Loss narrowed 27% |
| GAAP earnings per share (EPS) | $0.23 | ($0.18) | Flipped to negative from positive |
| Adjusted EPS | ($0.10) | ($0.07) | Loss narrowed 30% |
Data source: Matterport. YOY = year over year. GAAP = generally accepted accounting principles. *Calculations by author except for revenue change, which was provided by Matterport..
Investors should focus on the adjusted numbers, since they exclude one-time items.
Revenue growth wasn't all organic. It was helped to some unspecified degree by its July 2022 acquisition of VHT Studios, a real estate digital-marketing company.
Wall Street was looking for an adjusted loss of $0.10 per share on revenue of $35.1 million. So Matterport beat both estimates. It also surpassed its own guidance, which was for an adjusted loss per share between $0.09 and $0.11, and for revenue of $34 million to $36 million.
Matterport used cash of $20.4 million running its operations during the quarter, compared with $25.5 million in the year-ago period. It ended the period with $456 million in cash and short-term investments and no long-term debt.
For context, in the prior period (the fourth quarter of 2022), the company's total revenue surged 52% year over year to $41.1 million, driven by product and services revenue soaring 107% and 122%, respectively. Subscription revenue increased 17% to $19.3 million.
Revenue breakdown
| Metric | Q1 2023 | Change YOY* |
|---|---|---|
| Subscription revenue | $19.8 million | 16% |
| License revenue | $27,000 | 17% |
| Services revenue | $8.7 million | 119% |
| Product revenue | $9.4 million | 28% |
| Total revenue | $38 million | 33% |
Data source: Matterport. *Calculations by author except subscription revenue change, which was provided by Matterport.
Subscription revenue surpassed the company's guidance range of $19.3 million to $19.5 million. Total subscribers increased to 771,000, up 37% from the year-ago quarter. Paid subs grew 16% to 67,000.
The quarter's net-dollar expansion rate was 103%, chief financial officer JD Fay said on the earnings call. This means that existing subscribers increased their spending with the company by an average of 3% year over year. This is a subpar result for a growth company with a software-as-a-subscription business model.
For context, in the prior four quarters, the net-dollar expansion rate was 103% (Q4 2022), 106% (Q3 2022), 107% (Q2 2022), and 107% (Q1 2022). Before last year, this metric had historically been about 110%. Management has attributed the decline in this metric over the past several quarters to small and medium-size customers being cautious in their spending due to the uncertain macroeconomic environment. However, "enterprise [customer] retention and expansion remain strong," according to Fay.
In the first quarter, spaces under management (SUM) grew to 9.9 million, up 36% year over year.
Guidance
Management issued guidance for the second quarter. For full-year 2023, it moderately raised its earnings outlook, and edged up the lower range of its revenue outlook, which slightly bumped up the midpoint of the range.
| Metric | Q2 2023 Guidance | Q2 2023 Projected Change YOY* | Initial Full-Year 2023 Guidance | Current Full-Year 2023 Guidance | Full-Year 2023 Projected Change YOY* |
|---|---|---|---|---|---|
| Revenue | $38 million to $40 million |
33% to 40% |
$153 million to $169 million [$161 million midpoint] |
$155 million to $169 million [$162 million midpoint] |
14% to 24% |
| Subscription revenue | $20.7 million to $20.9 million |
13% to 14% |
$84.5 million to $86.5 million [$85.5 million midpoint] |
$84.5 million to $86.5 million [$85.5 million midpoint] |
15% to 17% |
| Adjusted earnings per share (loss) | ($0.09) to ($0.07) |
Loss projected to narrow 25% to 42% |
($0.36) to ($0.32) [($0.34) midpoint] |
($0.31) to ($0.27) [($0.29) midpoint] |
Loss projected to narrow 24% to 34% |
Data source: Matterport. *Calculations by author except for revenue changes, which were provided by Matterport.
A strong balance sheet and some key metrics are moving in the right direction, but caution is warranted
In the first quarter, many of Matterport's key metrics moved in the right direction relative to a year ago. Total revenue increased substantially, subscription revenue increased moderately, the adjusted loss per share narrowed, and cash used in operations also narrowed.
Another positive is the company's pristine balance sheet: $456 million in cash and short-term investments, and no long-term debt. This robust financial footing should provide the company with ample time to refine its long-term growth strategies, including those related to the emerging metaverse.
That said, most investors should just watch this stock for a while, rather than considering buying it now, in my view. The first reason for caution is that the stock's price per share is less than $5, which makes it a so-called penny stock. (Shares closed at $2.84 on Wednesday.) Only investors comfortable with high risk and high volatility should buy penny stocks. Among other issues, their low price tends to make them more easily manipulated by big players in the market.
Another concern is subscription growth. Granted, the company's performance was hurt by pandemic-related issues and continues to be negatively affected by the uncertain macro environment. Nonetheless, subscription growth in the mid-teen percentage range still seems somewhat light given the company's small base number. Moreover, the quarter's net-dollar expansion rate of 103% is concerning.
Most investors should wait until the following things occur before considering buying Matterport stock:
- The stock's price is no longer in penny stock territory.
- Subscription revenue growth accelerates somewhat without the company sacrificing the continued improvement in profitability.
- The net-dollar expansion rate improves, at least back to about its historical level of 110%.
