Matterport (NASDAQ: MTTR) creates digital worlds. The spatial data technology company develops advanced software and hardware that are used to capture physical building spaces and designs to build a 3D twin of a building. This trifecta of different camera types, software, and applications is heavily used by real estate agents around the world to create higher quality listings. The theory is that by making virtual home tours more engaging, the agents are able to drive higher lead conversions.
This total addressable market for digitizing the built world is significant according to Matterport. The company has boldly stated that it is targeting every building and every country in the world. Hence, revenue growth was expected to be material. This was initially driven by pandemic era stay-at-home orders that created material momentum for the growth of the virtual economy. The challenge for Matterport now is sustaining this growth as it navigates a new stock market reality.
The new reality is characterized by the sustained dumping of broadly unprofitable growth companies, previously the market’s own golden children. This has seen the price of Matterport’s common shares pull back markedly from its previous high of $ 37.60 to $ 5.39, a decline of around 85.6%.
Further, enthusiasm around the metaverse investment thesis is disappearing. The vast and expansive opportunity posed by the virtual world that was set to form the next phase of the internet was partly responsible for some of the hype that pushed the company to its previous high. There was no mention of the metaverse during the latest earnings call, highlighting just out of favor the thesis has become.
With mentions and internet chatter on the metaverse effectively dying, so has the enthusiasm that drove a significant amount of the previous valuation which at its peak stood at $ 8 billion. However, as interim valuations continue to be skewed by the intense fear that has collapsed stock market prices to their lowest levels in over a decade the Metaverse thesis was always going to be disrupted even though internet enthusiasm around it was still high. In the longer term continued work by Meta (FB) on the flegling virtual future might see this return.
Subscriber Growth Surges As Revenue Slows
Matterport released fiscal 2022 first quarter results after market close on Tuesday. The quarter was quite mixed with revenue coming in at $ 28.51 million, a small 5.9% increase from the year-ago period but still a $ 1.04 million beat on consensus estimates. Subscription revenue was an immensely bright spot, with the higher-margin division up 24% to $ 17.1 million, compared to the comparable year-ago quarter. This was on the back of total subscribers increasing to 562,000, a 70% increase compared to the first quarter of 2021 as annualized recurring revenue hit a new record of $ 68.6 million. Spaces under management also grew to 7.3 million, a 49% increase against the comparable year-ago quarter.
Shares reacted strongly in aftermarket trading, surging by double digits, as embattled bulls cheered the growth in subscribers. This forms the long-term investment case for Matterport as the company’s mix of both hardware and software sales has meant underlying revenue growth has been slow and patchy. Indeed, on a sequential basis revenue is only up 4.9% and is down from the second quarter of fiscal 2021.
The company has described itself as still in the very early stages of capturing the expansive opportunity posed by its target market. As a result, the quarter saw continued investments into the core business. Selling, general, and administrative expense at $ 29.5 million was up from $ 12.6 million a year ago as investments in sales and marketing were made to drive global growth. Non-GAAP net loss was $ 27.9 million and diluted non-GAAP loss per share was $ 0.10 for the quarter. This was better than the company’s guided range of a $ 0.13 to $ 0.15 loss.
As Matterport expects revenue for fiscal 2022 to range from $ 125 million to $ 135 million, the current price to sales multiple stands at 11.2x using the high end of the revenue range. This might be quite high for a company still growing core revenue at single digits and is quite remarkable that it has held up against what has been a huge pullback in its common shares.
The New Reality
The new reality has not been great for investors that took on a longer-term approach with their investments by deploying their capital to companies attacking large TAMs but doing so with less regard for short term profitability. Matterport is a great company in an interesting space, and whilst the current anaemic topline revenue growth and double-digit sales multiple might dissuade prospective investors, the future will likely see continued strength in subscription revenue growth. In this, Matterport might be able to build itself a new reality.