Shares of Matterport (MTTR 0.85%) soared 25.9% on Tuesday, following the digital-twin platform operator's release on the prior afternoon of its third-quarter 2023 results.
The stock's rise is largely attributable to the quarter's revenue and earnings exceeding the Wall Street consensus estimates. Investors were also likely at least satisfied with fourth-quarter guidance, which was a bit lighter-than-expected on the top line but better-than-anticipated on the bottom line.
Matterport's key numbers
| Metric | Q3 2022 | Q3 2023 | Change YOY* |
|---|---|---|---|
| Revenue | $38.0 million | $40.6 million | 7% |
| GAAP operating income | ($59.0 million) | ($49.4 million) | Loss narrowed by 16% |
| GAAP net income | ($58.3 million) | ($44.8 million) | Loss narrowed by 23% |
| Adjusted net income | ($26.9 million) | ($12.0 million) | Loss narrowed by 55% |
| GAAP earnings per share (EPS) | ($0.20) | ($0.15) | Loss narrowed by 25% |
| Adjusted EPS | ($0.09) | ($0.04) | Loss narrowed by 56% |
Data source: Matterport. YOY = year over year. GAAP = generally accepted accounting principles. EPS = earnings per share. *Calculations by author, except for revenue-adjusted EPS changes, which Matterport provided.
Investors should focus on the adjusted numbers, which exclude one-time items.
Wall Street was looking for an adjusted loss of $0.06 per share on revenue of $39.1 million. So, Matterport beat both estimates. It also surpassed its own guidance, which was for revenue between $38 million and $40 million and an adjusted loss per share between $0.07 and $0.05.
Matterport used cash of $15.5 million running its operations during the quarter, an improvement of 62% year over year. It has a robust balance sheet, ending the period with $407.8 million in cash and short-term investments and no long-term debt.
Revenue breakdown
| Metric | Q3 2023 | Change YOY* |
|---|---|---|
| Subscription revenue | $22.9 million | 20% |
| License revenue | $28,000 | 33% |
| Services revenue | $9.9 million | (1%) |
| Product revenue | $7.8 million | (13%) |
| Total revenue | $40.6 million | 7% |
Data source: Matterport. YOY = year over year. *Calculations by author, except for subscription revenue change, which Matterport provided.
Total subscribers jumped 35% year over year to 887,000. Paid subscribers grew 13% to 71,000. And spaces under management increased 28% to 11.1 million.
The quarter's net-dollar expansion rate was 103%, CEO RJ Pittman said on the earnings call. This means that existing subscribers increased their spending with the company by an average of 6% year over year. This is an improvement over the first and second quarters of this year, when this metric was 103% and 100%, respectively. But it is notably lower than the company's historic average of about 110% through 2021. And it is a subpar result for a growth company with a software-as-a-subscription business model.
What the CEO had to say
Here's most of what CEO Pittman had to say in the earnings release:
Total revenue for the quarter grew to $40.6 million, fueled by strong uptake from enterprises and SMBs. Subscription revenue jumped 20% year-over-year, to a record $22.9 million, underscoring the growing trust in our platform to boost productivity and cut operational costs. As our business continues to grow we are succeeding in generating economies of scale that drive steady improvements in our bottom line, as reflected in our strong earnings beat this quarter. We aim to compound this trend with our recently announced AI-powered property reports and insights currently in Beta [testing].
As for the mention of artificial intelligence (AI), Pittman is referring to the company's Genesis initiative, which will "incorporate generative AI across our digital twin platform to dramatically improve operating efficiency and the decision-making process in the property sector," the company said in a press release.
Guidance
For Q4, management guided for revenue of $39 million to $41 million and an adjusted loss per share of $0.05 to $0.03. At the midpoint, the revenue outlook is a little lower than the $40.2 million Wall Street was expecting. Also at the midpoint, the bottom-line outlook is $0.01 better than the loss of $0.05 per share analysts had been projecting.
Earlier this year, management took actions (including restructuring and cost-cutting) to accelerate its path to profitability. It continues to expect cash flow
from operations to be breakeven in 2024.
Solid progress on a few fronts, but caution is still warranted
In Q3, Matterport did a good job of increasing subscription revenue, narrowing the adjusted loss per share, and narrowing the negative cash flow from operations. Moreover, its balance sheet remains very healthy. The company has significant growth potential, though that does not mean it will realize that potential.
Investors still need to be cautious for the following key reasons:
1. While an improvement from Q1 and Q2, the quarter's net-dollar expansion rate of 106% is still on the low side. It suggests that customers as a whole are not seeing enough value in their current paid subscriptions to notably expand their spending on the company's offerings. Of course, this metric is being hurt by the uncertainty surrounding the macro environment and the tough real estate market. We just can't know to what degree.
2. The company's stock is priced under $5 per share. (It closed at $2.67 on Tuesday.) This makes it a "penny stock." Such stocks tend to be highly volatile and risky.
