Matterport Stock – Digital Twins for Global Real Estate
Simulating reality is an increasingly common occurrence in today’s tech startups, whether that’s modeling the behavior of cancer cells or creating a digital twin of a factory floor. While tools like Google Maps now help us navigate the real world using a virtual representation, the functionality stops outside the doorsteps of the more than 4 billion buildings that represent the largest asset class in the world. Real estate, in all its forms, has an estimated value of over $230 trillion. Capturing just a few basis points on all this value could make for a very compelling business model.
Founded in 2011, Silicon Valley company Matterport took in about $114 million in disclosed funding from a long list of investors including Qualcomm (QCOM), Ericsson (ERIC), AMD (AMD), and PTC (PTC), a company we wrote about in our piece on Investing in IoT and Augmented Reality with PTC Inc. All that money has been used to build “the leading spatial data company driving the digital transformation of the built world.” In February of this year, Matterport announced their intent to merge with a special purpose acquisition company (SPAC) called Gores Holdings VI, Inc. (GHVI). In addition to a glossy investor deck that talks up the opportunity in the best way possible, the company has also filed an S-4 which contains some insights. Most notable is the progress the company has made towards establishing a leadership position in the digitization of buildings and spaces for the smart cities of tomorrow.
What Does Matterport Do?
Simply put, Matterport enables anyone to create a realistic 3D model of the buildings and spaces around them. We first wrote about the company in our 2017 piece on 11 VR Startups Tackling Enterprise Applications. At that time, they had captured over 500,000 spaces. This month, they surpassed 5 million spaces, representing 15 billion square feet. Everything from homes, offices, schools, factories, retail stores, hotels, apartments, vacation properties, museums, galleries, yachts, and even aircraft are being mapped by Matterport which claims to have 100X more images than all their competitors combined, emerging as a clear leader in creating digital twins of buildings and spaces.
The obvious use case is in real estate – things like virtual tours – where companies such as Redfin, Century 21, and RE/MAX are all Matterport clients. But there are far many ways to use 3D images of indoor and outdoor spaces. For example, once you’ve mapped all your spaces, you can then start querying your data set with questions like:
- How many windows are there in my building?
- What’s the average size of a kitchen in all London flats?
- How many of my retail stores have at least two checkout counters?
- What’s my biggest conference room across all office locations?
It’s easy to see how such a tool might come in handy for property management firms, or in travel/hospitality, where Matterport has landed clients like Airbnb and Hyatt. More than 250,000 customers use the Matterport platform (about 44,000 are paid subscribers), with their top ten customers not exceeding 10% of total revenues.
Matterport’s Business Model
While some industries like travel took a massive hit from The Rona, Matterport seems to have sailed through unscathed. The company’s traction is most apparent in their growing revenue streams which are broken down into four segments as follows:
“Subscription” is the software-as-a–service (SaaS) revenues we’re looking for which had a retention rate of 112% at the end of 2020. That means Matterport is upselling existing customers – the old land-and-expand model. “License” revenues come from data license solutions that allow certain customers to use their digital twin data for their own needs, while “Services” are where Matterport professionals provide on-site scanning services for clients that need them. “Product” revenues come from Matterport’s $3,000 3D capturing camera which is just one of many ways their platform lets you map indoor spaces.
You’ll notice that Matterport’s revenues from their camera are expected to go flat in 2021. The company says that by 2025 they expect more than 80% of revenues to come from subscriptions and licensing. This change in direction could be from their unsuccessful attempt at trying to market the camera as a potential business model for would-be entrepreneurs.
In ‘Murica, lawsuits are as frivolous as reality TV, but one involving Matterport is of interest. A class action lawsuit filed last year accuses Matterport of touting their camera as a potential source of income for those who shelled out thousands of dollars in hopes of building a business around capturing 3D imagery. Matterport is accused of “cannibalizing” these vendors with their own services and not providing proper support. It begs the question, why doesn’t Matterport just give away their cameras if they’re the ones benefiting most from the images they capture?
While there are obvious advantages of using a professional piece of camera equipment to capture imagery, Matterport’s capturing capabilities extend to other hardware providers including the ubiquitous smartphone. Whatever imagery you capture is the property of Matterport, so they’re able to leverage their big data set to create new functional offerings. “Today Matterport transforms buildings into data, tomorrow, Matterport’s data will be used to increase the value of every building,” says the company. We recently talked about how Procore is digitizing construction. Unsurprisingly, Procore customers are now able to seamlessly integrate Matterport 3D models into their project management view. Ideally, as new buildings and spaces are built, they’ll automatically be transitioned over to Matterport. The global opportunity is remarkably large.
The Giant TAM
It’s not often you come across a total addressable market (TAM) of the size Matterport plans to address. If the company can just bring 1% of the global real estate market online, it’s a multi-billion-dollar business with some healthy margins.
If a building has five spaces on average, then it’s reasonable to expect that they would pay $60 a year for Matterport’s services in exchange for at least as much value provided. When you also consider the lead Matterport has over their competitors, it sounds like a pretty compelling investment. But at the end of the day, we need to decide if the company belongs in our own tech portfolio.
To Buy or Not to Buy
We’re not in a hurry to add new tech companies to our portfolio, especially when they come to market using a SPAC, and the deal isn’t even expected to close until the third quarter of this year. There’s a reason that hedge funds like to trade pending M&D deals. Sometimes, things don’t go through as planned, and SPAC deals are starting to deteriorate as everyone rushes to find a chair before the music stops. Provided there are some proper regulatory firing documents to review, could Matterport find a place in our own tech stock portfolio?
Matterport’s revenues from “product” are flatlining this year and their obligatory hockey-stick revenue growth forecast shows an increasing percentage of revenues coming from subscriptions. The question is, how resilient will these subscriptions be in the face of a recession? As risk-averse investors, we prefer business models where the value proposition is even more viable when times are tough. If Matterport’s platform can decrease costs for their clients, or increase their revenues, then they’ll be less likely to be affected by economic downturns. Geographical diversification can help lessen this risk. As of December 31, 2020, subscribers outside the United States accounted for more than 35% of Matterport’s subscription revenues.
One other thing worth noting is that Matterport identified “material weaknesses in its internal controls over financial reporting” which could amount to nothing or could require them to restate their financials. It’s just another reason why investors should wait until the transaction is finalized before considering an investment here, not to mention the current share price. Why would anyone pay a +43% premium for shares of the SPAC prior to the deal even closing? Retail investors should pay the price institutional investors are paying – $10 a share, not $14.31 a share.
There’s a lot to like about Matterport the company. A blue-ocean TAM, a market leadership position, international diversification, and now, a planned infusion of cash to the tune of $615 million. As for Matterport the stock, we don’t believe shares should be trading at a premium when the deal isn’t even expected to close until Q3-2021. We’ll take another look at the company next year when the dust has settled and any financial reporting regularities have been resolved.
Should the transaction go through as expected, the ticker will change from GHVI to MTTR.
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Nice write up. Thanks. I got in at a little over $11/share and have $2300 profit. Who would buy it? According to posters on Yahoo a lot of people are still buying it. Discounting these posts by 90% for scammers posting false trades and the rising price for this SPAC I can say whoever wants to buy will not get my shares. I was a little cool to get into this until posters started to post how popular it is and how fast it is growing. Procures usage is obvious to me. Knowing accurate 3d information about a successful project lets the builder match his cost against the sales price. In today’s rapidly changing cost environment for building material company’s like Procure would find it very useful. So many good stocks to buy and so few chips to play with.
Cheers for the feedback Jim!
Remember, you only have profit when you sell. That’s why we like very long time horizons. Figuring out when to take profits is always the hardest part. What we’ve been doing is trying to recover cost basis and then letting the remaining position live on – playing with the house’s money, in other words. This is a sound strategy for when things run up very quickly (we did this with our gene editing holdings and with a 3D printing SPAC, Desktop Metal.)
We were amazed at how big their total addressable market is. We’ll be checking back in with the stock once the deal closes and some proper financial filings are made.
Sure, a lot of people may be buying it now, but what happens when a lot of people are selling it? Volatility works both ways.
Always enjoy hearing reading your comments from the trenches of market warfare Jim. 🙂
“As for Matterport the stock, we don’t believe shares should be trading at a premium when the deal isn’t even expected to close until Q3-2020. ” Hum…as this article is published May, 2021, I’m assuming the Q3 is suppose to be 2021?
Great spot Wendy, thank you for pointing that out. Yes, it’s supposed to be Q3-2021. That’s fixed now.