Summary
Matterport at its core enables real estate agents to build higher quality listings.
However, the company’s value is now being driven by investor hype over the still unknown potential of the metaverse.
The current valuation might prove to be too rich especially as revenue growth is slowing down.
blackdovfx/iStock via Getty Images When Matterport (NASDAQ: MTTR ) announced it was going public via a special purpose acquisition company earlier this year, the word metaverse had barely entered the investing lexicon, and VR was still considered to be a technology that failed for years to gain mainstream traction. A few months later, and this narrative had changed to one characterised by rabid investor euphoria and hype over the vast potential of the metaverse.
First coined by author Neal Stephenson in his 1991 science fiction novel “Snow Crash”, the metaverse is now defined by some as the virtual world that will form the next phase of the internet. The term rapidly shot into the investment mainstream when Facebook evolved to take the Meta (NASDAQ: FB ) moniker and announced that it would place the construction of virtual utopias at the centre of its future business strategy. This was more than 7 years in the making as it came on the back of the company’s 2014 acquisition of VR headset manufacturer Oculus Rift. Hence, when Matterport’s partnership with Meta was made public, the stock price ran up big. A significant amount of the company’s current value is now being derived from investor hopium over the still unknown potential and reach of the metaverse.
The hype is real. Seeking Alpha’s Chris Ciaccia calls it “the biggest disruption society has faced” while AllianceBernstein describes it as “evolutionary”. The inherent looming spectre of the metaverse and Matterport’s fit into this future has created a material level of speculative froth in its common shares. The risk from this is especially heightened when the fundamentals fail to reflect the valuation multiple expansion. Revenue Growth Slows As Multiple Ramps Up
Matterport last reported earnings for its fiscal 2021 third quarter saw revenue come in at $27.66 million , a year-over-year increase of 10% and a $1.49 million miss on consensus estimates. The company also lowered its fiscal 2021 revenue guidance to be no more than $110 million, down from estimates of sales to between $120 million and $126 million. Hence, with the current market cap standing at $5.86 billion, Matterport trades on a price to sales ratio of 53x. Bears would be right to state that this does not make sense for a company that just barely realized double-digit revenue growth. While bulls would also be right to state that subscription revenue grew faster at 36% to $16 million. This was on the back of paid subscribers increasing to 53,000, a 35% increase from the year-ago period. When you include the free tier subscription offering, total subscribers reached 439,000. This was a 116% year-over-year increase. Gross profit margins stood at 51.26% a sequential decrease of 900 basis points.
Matterport describes itself as a 3D spatial data technology company. A potent combination of different camera types, advanced software, and applications that are used to capture building spaces and designs to build a 3D twin of a specific building. It estimates that the market for digitizing the built world is significant with use cases ranging from better and more interactive virtual home tours to conducting building due diligence. Management has enthusiastically and boldly stated that their target market is every building and every country in the world.
Real estate agents looking to create higher quality listings still form the bulk of Matterport’s revenues. By making virtual home tours more engaging from 360 views of a property versus basic pictures, Matterport has genuinely created a strong product that is meeting market demand. This took off during stay-at-home orders last year, but momentum has clearly slowed. This is not great news for a company that is still unprofitable and had $18.5 million in operational cash outflows during its last quarter. However, with cash and equivalents at $323 million, the company has ample liquidity to potentially realize its vision to digitalize the world. Grand Visions Of An All Digital Reality
Matterport’s use case is clear, and its historical revenue growth has strongly reflected this. But its revenue multiple is far too rich for a company that is barely growing. While the metaverse has potentially opened a new frontier for revenue growth, the current market premium on Matterport’s shares is far too strong. If this turns out […]
source Matterport: The Metaverse Investment Thesis Is Somewhat Irrational
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