3 things about Matterport that savvy investors know

Matterport (MTTR -7.64%), a 3D scanning software developer that creates “digital twins” of physical locations, went public last July by merging with a special purpose acquisition company (SPAC). After hitting an all-time high of $33.05 in November, its stock has since fallen more than 80% as investors worried about the company’s slowing growth and mounting losses.

I recently compared the bear and bull cases for Matterport and concluded that the bears will stay in control until it expands its business. But today, I want to focus on three lesser-known facts about this divisive company.

Image source: Getty Images.

1. It’s still a camera maker

In 2021, Matterport generated 71% of its revenue from subscriptions, licenses and services. The remaining 29% came from its product segment, which generates most of its revenue from its Pro2 3D camera, which starts at $3,395.

However, Matterport also recently started selling third-party 3D cameras alongside its pricey Pro2 3D, and it now provides 3D capture apps for iPhones and Android devices. It says selling cheaper third-party cameras and reaching more users with its mobile apps will lead to increased adoption of its core software solutions in the long run.

That may be true, but it also raises a troubling question about product cannibalization: why would customers buy Matterport’s expensive cameras when they can buy cheaper devices or just use their phone?

Matterport’s product revenue fell 2% last year to $32.5 million, but the segment’s cost of revenue jumped 30% to $26.4 million. These numbers indicate that it might be wiser for the company to phase out its proprietary cameras and let its mobile apps and third-party devices do the heavy lifting.

But opening up its platform to more devices could also erode its defenses against rivals such as Zillow Group, which provides its own 3D scanning platform, and start-ups like EyeSpy360, Cupix and Easypano. Therefore, while gross margins for Matterport’s proprietary camera business may continue to be squeezed, it’s unclear if it will ever exit the segment.

2. Most Matterport Subscribers Still Have Free Plans

After a user scans a space with Matterport’s software, the digital model is uploaded to its cloud-based platform, where it is not accessible without a subscription. The growth of this platform seems at first glance impressive: the number of spaces under management increased by 56% to reach 6.7 million in 2021, and the number of subscribers increased by 98% to reach 503,000.

However, by the end of the year, 448,000 of those subscribers were still using Matterport’s free tier, which gives users access to a digital twin. That’s a 113% increase from 2020. The number of paid users, who pay between $10 and $689 each month to access between five and 300 digital templates, grew only 25% to 55,000.

Matterport believes it can convert more of these free users to paid users over time. But until he demonstrates this to be true, he will be burdened with cloud hosting costs for any free data associated with those accounts. This is likely why the company expects its adjusted net loss to more than double this year.

3. He expects bigger competitors to rush in

In its latest 10-K filing, Matterport admits that many of its smaller rivals in the spatial data market still suffer from “limited funding” and that “poor experiences” with these competing services could “hinder consumer trust.” in the spatial data market”. and vendor adoption or trust. »

At the same time, the company expects some of these competitors to be “acquired by more resourceful third parties.” This strongly implies that tech giants like Apple and Alphabetwhich have already integrated 3D scanning and augmented reality features into their mobile operating systems, could threaten Matterport’s long-term growth.

On the good side of shareholders, Matterport could also become a takeover target.

It’s still a very speculative bet

Last year, Matterport made a longer-term forecast that it could generate $747 million in revenue in 2025. But following its 2021 downturn, it is expected to grow revenue at an annual rate. composed of 61% by reaching this target. Analysts expect its revenue to grow by only 17% in 2022 and forecast that it could accelerate its growth to 49% in 2023 if it converts more free users to paid users and overcomes its supply chain challenges.

But trading at 13 times this year’s sales, Matterport shares are still not cheap enough to be considered undervalued. cloud communication company Twilio (TWLO -6.25%)which expects annualized organic sales growth of more than 30% over the next few years, is trading at just 6 times this year’s sales. Palantize (PLT -7.89%)a data mining company, is targeting revenue growth of more than 30% by 2025 and is trading at 12 times this year’s sales.

Simply put, Matterport’s share price could be halved again in this tough market for growth stocks before it’s reasonable to consider it a value play. Investors should exercise caution and read the fine print before assuming that Matterport will permanently change the way people virtually visit real places.

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