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Matterport ( MTTR ) has been a roller-coaster stock to own these past few months. With its upcoming Q4 2021 results, I make the argument that the stock is still overvalued and that investors would do well to avoid buying this dip.
Matterport has become increasingly free cash flow negative, without seeing a proportionate increase in revenue growth rates. In essence, I make the argument that Matterport’s investment for growth strategy hasn’t been backed by tangible facts.
As we think through Matterport’s business model and how its sale of cameras are dwindling, I contend that we are not seeing a commensurate pick-up in its subscription business.
Altogether, investors are asked to pay 16x forward sales, which is too expensive for what’s on offer. Here’s why: Investor Sentiment: Shedding MTTR’s Premium
Data by YCharts The past 3 months have been anything but fun for shareholders here. Here are a few facts to keep in mind.
I consistently stated that Matterport was overvalued. And every time I made such a claim, readers pushed back that Matterport was investing in the future. And this is obviously true, nobody doubts this.
But all the same, one must also balance that point of view with thinking through whether the odds of investing here are in one’s favor or not.
Case in point, two weeks ago I stated , Matterport stock price falls 40%, but you shouldn’t rush to buy this dip. Author’s coverage of Matterport And as you can see above, even though many believed that since the stock was already down, MTTR couldn’t possibly continue to sell off further, the fact turns out that MTTR sold off a further 30% in less than 2 weeks. That’s the bad news.
The good news is that after this level of correction, a new shareholder base comes to be, and they’ll be given the opportunity to appraise Matterport’s potential with a fresh pair of eyes, with no commitment bias, and crucially fresh capital. Matterport’s Revenue Growth Rates, It’s All About The Upcoming Guidance
We are about two weeks away from Matterport’s Q4 2021 results. Matterport’s guidance for 2021 puts the company on a path to growth by 28% CAGR y/y.
Given that in 2020, Matterport’s revenues were up 87% y/y, this points to a dramatic slowdown.
Consequently, this naturally begs the question as to what sort of growth rates can investors expect from Matterport in 2022?
Presently, analysts following the company are expecting that Matterport has a strong bounce back in its fortunes and re-accelerates its growth rates back to the mid-40s% range.
Accordingly, if indeed Matterport’s guidance in two weeks’ time reaffirms that Matterport is still expecting approximately $160 million of revenues in 2022, this would positively change the dynamics of this investment substantially.
In essence, that would be the most crucial element for investors to cast their eyes on when Matterport reports its results. Number of MTTR Shares Outstanding Increases
Moving on, last week, Matterport issued a further 9 million shares on the back of its warrant redemptions.
This implies that when Matterport comes around to reporting its results in a couple of weeks, we are likely to hear an updated figure from Q3 2021, where its total number of shares outstanding reaches slightly more than 250 million shares outstanding.
On positive news, this implies that after its warrant redemption, Matterport now carries no debt, having paid it all back on the 30th of September, and holds on its balance sheet approximately $500 million of net cash.But is it enough? Thinking Through Matterport’s Profitability What does Matterport do? Matterport was focused on selling its cameras to get customers into its ecosystem. That was not a particularly high-margin business, but it was an attractive business model. Sell the user the camera plus access to the Matterport’s platform.However, given the pace that technology moves, it’s now it’s just as practical for users to use the cameras on their smartphones. This naturally implies that if you are no longer selling technicians’ cameras, you have to charge substantially more to your users to get them to embrace your technology. Matterport Q3 2021 results However, as you can see above, the subscription revenue line, which should the crown jewel of this investment thesis, is quite mediocre.Previously, even up to a few months ago, I’d always feared talking about Matterport’s free cash flows. Indeed, I’ve been investing long enough to know that during a bull market, the last thing you do as an analyst is put a spotlight on in a company’s free cash flow. Matterport Q3 2021 […]
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