Is it too late to buy Matterport shares?


Matterportit is (NASDAQ: MTTR) The stock jumped 15% to a three-month high after the 3D spatial mapping company released its second-quarter earnings report. Its revenue fell 3% year over year to $28.5 million, which missed analysts’ estimates of $1.9 million.

Its adjusted net loss fell from $5.6 million to $35.3 million, or $0.12 per share, but it still beat the consensus forecast by two cents. On a GAAP (generally accepted accounting principles), its net loss went from $6.2 million to $64.6 million. Those numbers were messy, but investors spotted a few green shoots in its earnings report. Let’s review what Matterport does, why the bulls are interested again, and if it’s too late to hunt this volatile stock after its post-earnings rally.

Image source: Getty Images.

The Matterport business model

Matterport’s software allows its customers to scan “digital twins” of real-world spaces with 3D cameras. It then stores these twins on its cloud-based platform, where they can be accessed for browser-based tours, virtual reality experiences, or other applications.

Matterport operates a freemium model, which allows free users access to a single digital twin and paid users access to more spaces. During the second quarter, the company generated almost 65% of its revenue from these paid subscriptions. Another 18% came from its dedicated capture services, which help its customers professionally scan their physical spaces.

Matterport also sells its own high-end 3D cameras, which allow customers to scan their own spaces. These devices generate the bulk of product revenue, which accounted for 18% of its revenue. It also provides a mobile scanner app for iOS and Android devices.

How fast is Matterport growing?

Matterport’s unique business model first turned a lot of heads when it went public by merging with a special purpose acquisition company (after-sales service) last July. Shares of the combined company began trading at $14.42 on day one, hit an all-time high of $33.05 last November, but are now trading around $6.

The bulls pulled back because Matterport’s growth slowed. Its revenue grew 87% in 2020, but rose only 29% to $111.2 million in 2021 as supply chain headwinds strangled its 3D camera output. In the first half of 2022, its revenue grew only 1% year over year to $57.0 million.

Period

2021

Q1 2022

Q2 2022

Subscription revenue growth (YOY)

47%

24%

20%

Service revenue growth (YOY)

63%

48%

74%

Product revenue growth (YOY)

(2%)

(ten%)

(45%)

Total revenue growth (YOY)

29%

6%

(3%)

Data source: Matterport. YOY = year after year.

Matterport’s camera business continues to struggle with supply constraints, but CEO RJ Pittman said the company still had a “record backlog” it expected to fill in the third quarter.

Regarding its subscription business, Matterport’s total subscriber count grew 10% sequentially and 52% year-over-year to 616,000. However, 554,000 of those subscribers were using still its free plans – so it was actually only generating revenue from 62,000 paid subscribers. However, its net dollar expansion rate — which measures its year-over-year revenue growth per existing customer — was flat sequentially at 107%.

For the full year, Matterport now expects revenue to grow 19% to 24%, compared to its previous forecast of 12% to 21% growth. This higher orientation has caught the attention of the bulls, but it also takes into account its recent acquisition of real estate marketing company VHT Studios.

If we look beyond this purchase, Matterport actually cut its full-year subscription revenue forecast from 31% to 34% growth to just 19% to 21% growth. He attributed the slowdown to his delayed camera shipments, which typically lock in more paying customers, as well as a higher mix of larger corporate contracts, which take longer to be recognized as revenue. subscription.

Is Matterport’s business sustainable?

Matterport is still not profitable and its gross margin fell from 61.2% to 41.4% between the first six months of 2021 and 2022. Much of this decline can be attributed to its struggling camera business, but its pricing power could also remain limited. like other big companies — notably game engine developer Unit software (NYSE:U) — expand into the digital twin market. Its operating costs will also remain high as it supports an increasing number of free subscribers.

As a result, Matterport expects its adjusted net loss per share to decline from $0.23 per share in 2021 to $0.46 to $0.50 in 2022. It is not going bankrupt anytime soon, as it was still sitting on $562 million in cash and investments without any debt at the end of the second quarter, but it has also not been proven to ever turn a profit.

Is it too late to buy Matterport shares?

Matterport is still trading at 12 times this year’s sales. Unity, which expects to grow at a similar pace, is trading at the same price-to-sales ratio. However, Unity believes it can achieve non-GAAP profitability by Q4 2022, while Matterport continues to swim in red ink.

Therefore, I think it’s still too early – instead of too late – to buy Matterport. Investors should wait to see if it can stabilize its revenue growth and pare its losses before betting on a long-term turnaround.

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Leo Sun has positions at Unity Software Inc. The Motley Fool has positions and recommends Matterport, Inc. and Unity Software Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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