After Matterport (MTTR 0.86%) went public by merging with a special purpose acquisition company (SPAC) on July 23, 2021, its stock started trading at $14.23 per share. It eventually closed at an all-time high of $33.05 just four months later.
The bulls were initially impressed by the growth potential of Matterport's software platform, which is used to create "digital twins" of real-world locations like homes and offices. It also sold high-end 3D-scanning cameras for creating those twins and provided professional scanning services for businesses. These models could be used for virtual tours and virtual-reality experiences.
Image source: Getty Images.
During its SPAC presentation, Matterport claimed it could generate $202 million in revenue in 2022 with a gross margin of 60%. But in reality, it only generated $136 million in revenue that year with a gross margin of 38%. Matterport's failure to live up to its own rosy expectations caused its stock to plummet to about $3 today.
That steep drop reduced Matterport's enterprise value to just $348 million -- or two times its projected sales for 2023. Does that low valuation make it a potential comeback play? Let's review its near-term challenges to find out.
Why did Matterport lose its momentum?
Matterport operates a freemium model that enables its clients to store and access a single digital twin on its cloud-based platform. To access more than one twin, they need to pay recurring subscription fees.
Matterport generated 54% of its revenue from those subscription fees in 2022. Another 26% of its revenue came from its product sales, which include its own 3D cameras and accessories, while the remaining 20% mostly came from its professional scanning services. Here's how those three businesses fared since its public debut.
|
Metric |
2021 |
2022 |
|---|---|---|
|
Subscription revenue growth |
47% |
20% |
|
Product revenue growth |
(2%) |
7% |
|
Services revenue growth |
63% |
117% |
|
Total revenue growth |
29% |
22% |
Data source: Matterport.
Matterport's product revenue dipped in 2021 as the supply chain constraints curbed its production of new cameras, but it offset that slowdown with its growth in subscription and services revenue. In 2022, its camera business overcame its supply chain issues but its growth in subscriptions cooled off. Its services revenue surged, but that inorganic growth mostly came from its takeover of the real estate marketing firm VHT Studios last July.
For 2023, Matterport expects its revenue to rise 14% to 24%. It blames that slowdown on the persistent macro headwinds for the commercial and residential real estate markets. Analysts expect its revenue to rise 19% in 2023 and 16% in 2024.
Matterport doesn't have a path toward profitability
Matterport's revenue growth might seem stable, but its business model faces three existential challenges.
First, it's deeply unprofitable. It racked up a net loss of $111 million in 2022 while only generating $136 million in revenue. It also expects to stay unprofitable by both generally accepted accounting principles (GAAP) and non-GAAP measures in 2023.
Matterport can't come close to breaking even because its free users (which it still generously counts as "subscribers") are gobbling up a lot of its bandwidth. Its total number of subscribers rose 37% year over year to 771,000 in the first quarter of 2023. But within that total, paid subscribers only rose 16% year over year to 67,000. So as long as its number of free subscribers continues to outgrow and outnumber its number of paid subscribers by such a wide margin, its cloud-hosting costs will overwhelm its revenue.
Second, Matterport is arguably cannibalizing its own first-party cameras and professional services with scanning apps for iOS and Android devices. It has also made its own scanning platform compatible with third-party 3D-scanning cameras. Those strategies might tether more users to its cloud-based platform, but they could also reduce its product and service revenue.
Last but not least, larger companies like Unity Software and Adobe have been bundling similar digital-twin tools into their ecosystems. Real estate companies like Zillow also provide their own spatial scanning tools. It's unclear how Matterport can stay relevant in this increasingly crowded market as it racks up more losses.
Where will Matterport's stock be in a year?
Matterport won't go bankrupt anytime soon, since it ended the first quarter with $456 million in cash and investments with no long-term debt. But it also burned the bulls by falling short of its long-term goals, and there's no guarantee it can survive as larger companies like Adobe and Unity carve up the digital twin market.
Based on these facts, I believe Matterport's stock will either trade sideways or dip lower over the next 12 months. It probably won't rally again unless it converts more of its free users to paid ones and meaningfully narrows its ugly losses.
