Georgijevic/E+ via Getty Images Investment Thesis
Matterport ( MTTR ) is one of those companies where investor sentiment is here one day and gone the next.
I continue to warn investors that investors are paying too high a multiple for Matterport. Investors today paying 22x this year’s revenues for Matterport are going to be disappointed.
Not only is this company not growing anywhere near fast enough to support this valuation, but more importantly, I question whether the company itself has a strong enough grip over its near-term prospects to support this valuation.
Here’s why I continue to suggest that investors should pass on this investment. Investment Sentiment Slows Down For Matterport
Data by YCharts In my previous article, I said: Matterport’s share price has been volatile of late. However, that hasn’t stopped it from jumping 82% in the past 3 months alone. This is an astonishing feat in and of itself but made all the more notable as so many high-growth names have so dramatically fallen out of favor with investors these past few months, even though in many cases their underlying fundamentals have remained strong. In the case of Matterport, I believe the opposite dynamic is at play. The share price is soaring higher and higher, even though the fundamentals appear to be deteriorating […] I know from experience, that as long as the share price is moving up and to the right, nobody asks difficult questions from their investment. But I also know that sentiment can be notoriously fickle. Here one day and gone the next. MTTR author coverage And that’s the thing with investing. If you want to be a buy-and-hold investor you have to be willing to embrace the downturn as well as the upturn. Investors can not simply be buy-and-hold investors as long as the share price is going up. Because that’s not investment discipline. That’s gambling.
And if you are not a buy-and-hold investor, you need to consider the valuation you are paying and whether it makes sense to deploy your hard-earned capital. You can not control the company’s prospects, but you can control the price you are willing to pay. Matterport’s Revenue Growth Rates Come Into Question
Matterport SEC filing (form 425) Matterport put out guidance that it would be growing its revenues at a 59% CAGR from 2019 through to 2025, as you can see above. A mightily impressive growth rate that’s commensurate with a futuristic company all out to embrace the metaverse.
However, as we start to get the actual results, not only was Q3 2021 only up 10% y/y, but its guidance for the remainder of the year points to $110 million at the high end, a meaningful drop compared with $123 million that we see guided for above.
This implies that Matterport’s guidance for 2021 puts the company on a path to grow at approximately 28% CAGR this year.
When I opined on this a few weeks ago , it was interesting to read through people’s feedback. And that’s the thing with investing. When the share price is going up, a lot is forgiven.
But as the share price loses more than 40% of its value in a few weeks, this dramatically changes the way investors assess their investment. Now Matterport’s Profits Start to Matter
Matterport non-GAAP results Previously, investors were more than willing to look beyond Matterport’s bottom-line profitability. But now that the share price has started to sell off, investors are going to start to reconsider whether it still makes sense to pay a premium valuation for a business with negative 50% non-GAAP net margins.
Even though Matterport holds no debt on its balance sheet, it does carry approximately $335 million of earn-out liabilities. Matterport earn-out liability What this means in practice is that this cash-burning business will probably have to dilute shareholders imminently to raise cash: Matterport cash flow statement As you can see above, for the 9 months of 2021, Matterport used $26 million of free cash flow on the back of $84 million in revenues. This implies a negative free cash flow margin of 31%. MTTR Stock Valuation – Expensive for What’s on Offer
It’s very difficult at this stage to get any visibility into Matterport’s more realistic revenue growth profile into 2022.
Presently, the analysts following the stock have nearly all downwardly revised their expectations for Matterport for 2022. As it stands right now, the consensus is pointing to close to $161 million. This implies that Matterport is priced at 22x this year’s revenues.
For context, at 26x this year’s revenues, which is […]