Matterport Stock: A Richly Valued Metaverse Play

Probably the best thing to come out of the special purpose acquisition company (SPAC) era is a population of stocks that all started out at the same price point. This makes it exceptionally easy to gauge performance at a glance. That is until stocks start splitting, but we have a feeling the only splitting happening for many of these companies will be going in reverse. Out of the 75 SPACs we’ve covered, here are the ones driving backwards the fastest. (Company names link to our research.)

Talkspace (TALK)$2.05-80%
Metromile (MILE)$2.20-78%
XL Fleet (XL) $3.36-66%
Spire Global (SPIR) $3.49-65%
Shapeways (SHPW)$3.77-62%
View (VIEW)$3.86-61%
AppHarvest (APPH) $4.13-59%
Momentus (MNTS)$4.17-58%
Sema4 (SMFR)$4.56-54%
BlackSky Technologies (BKSY)$4.68-53%

Nearly 75% of the SPACs we’ve researched are at or below their $10 per share debut price, but there are some that have brought SPAC investors paper gains, something they’re no doubt losing sleep over. Here are the top-ten performing SPACs in our list. (Company names link to our research.)

Enovix Corporation (ENVX)$27.16+172%
Blink Charging (BLNK)$26.87+169%
QuantumScape (QS)$23.22+132%
Arqit Quantum (ARQQ)$20.51+105%
Matterport (MTTR)$19.61+96%
Stem (STEM)$19.24+92%
Luminar (LAZR)$17.98+80%
IonQ (IONQ)$17.47+75%
Virgin Galactic (SPCE)$13.47+35%
Science 37 (SNCE)$12.87+29%

Today, we’re going to talk about the fifth stock on the above list – spatial data company Matterport Inc.

About Matterport Stock

This past May, we published a piece on Matterport Stock – Digital Twins for Global Real Estate which is pretty much what it says on the tin. Simply put, Matterport enables anyone to create a realistic 3D model of the buildings and spaces around them. Like most SPACs, Matterport provided little information about what’s under their hood, and the stock price soared as the Reddit types fueled the hype. Now that the dust has settled, we have a proper 10-Q to vet for insights. But before we do that, let’s see what the inflated share price and Q3-2021 revenues have done for our simple valuation ratio.

  • Market cap / annualized revenues
    $4,765 / $110.62 = 43

The stock is just barely over our threshold of 40, and is too richly priced for our tastes, especially when you consider that it’s a hardware business transitioning to a software-as-aservice (SaaS) business.

Matterport’s Revenues

Matterport sells expensive cameras which they then hope will generate imagery for their platform. We previously questioned why they don’t just give the cameras away to spur adoption, but that’s not going to happen, because around 31% of Q3-2021 revenues came from selling hardware products.

Matterport Q3-2019 revenues showing 31% came from selling hardware products.
Credit: Matterport

Maybe the better move would be to provide support for the supercomputers everyone carries around for accessing social media, and that’s precisely what Matterport has done.

Matterport for Mobile
Credit: Matterport

The expectation is that by 2025, they’ll have 88% of revenues coming from subscriptions. Matterport’s proprietary hardware appears to be on its way out as evidenced by the company’s statement “recently, we also have begun to offer capture devices manufactured by third parties.” Subscription revenue growth becomes a critical metric to watch because that’s what makes their value proposition so appealing. Since subscription revenues are what we’re buying, we can revise our simple valuation ratio to remove their flatlining product revenues.

  • Market capitalization / annualized revenues
    $4,765 / $63 = 76

Subscriptions as a percentage of overall revenues can increase as product revenues decrease, so we want to focus only on subscription revenue growth.

When we revisit SPACs like Matterport, we’re going to be very critical about whether companies meet the lofty projections they promised investors in an attempt to go public. Matterport is already falling behind with a revised guidance of $110 million for 2021 vs. the $123 million estimated in their SPAC deck. Yeah yeah, The Rona, but how long do we keep getting to use that excuse?

If MTTR stock simmers down to a fair value, would we go long?

The Metaverse Thesis

Facebook’s attempt at rebranding their company to Meta, a name nobody will actually use, shined the spotlight on a future where the virtual world becomes as important as the physical one. Social media in virtual reality is far less compelling than the enterprise metaverse where every business is a digital twin that is constantly being optimized. Matterport wants to create digital twins of buildings and spaces, an endeavor they believe will lead to a $100 billion company. That’s based on a calculated $240 billion total addressable market (TAM) which assumes 4 billion buildings and 20 billion spaces all paying $12 a year.

Matterport uses the term “digital twin” quite loosely. A proper real-world building that’s being simulated in a virtual world wouldn’t just be about appearance. It goes beyond identifying what objects are contained within, our even measuring spaces. A digital twin would also need to track temperature information, foot traffic, lighting, and all the other aspects of a smart building. Geospatial imaging is just one component of a smart building’s data exhaust.

To understand the value Matterport adds to their clients, we thumbed through the large collection of use cases now available on their website. As you would expect, there are lots of success stories from the real estate industry where showing virtual properties becomes a feature to help sell or rent them. Virtual showrooms are now becoming a thing for both B2B and B2C travel where consumers can peruse goods without being in a shop. Restaurant chain operators use the platform to identify stores that can be remodeled. And the list goes on.

Given the Matterport platform is being licensed by spaces and seats, it’s tough to understand the economics without data. For example, it appears that most business customers can cancel simply by contacting customer support.

Most business customers of Matterport can cancel simply by contacting customer support.
Credit: Matterport

These $69-a-month “contracts” that can be canceled any time aren’t the typical multiyear SaaS contracts we’re used to seeing. What’s missing is a breakdown of revenues taken in from the 53,800 customers on their platform. How many are locked into proper enterprise SaaS contracts? How many are paying $69 per month on a corporate credit card?

Matterport's enterprise SaaS contracts
Credit: Matterport

Matterport has a $111 million run rate, and we need more color as to how much of that is pay-by-month vs. long-term multiyear contracts.

Conclusion

Imagery is only one aspect of building management, and Matterport could use the $600 million in cash on hand to expand their business into other areas that involve creating digital twins of properties. For now, we’re avoiding the stock as it’s far too richly valued, customer revenue metrics are lacking, and it remains to be seen how well their Android app increases adoption.

With a hard limit of no more than 40 constituents in our tech stock portfolio, we need to feel absolutely confident about any companies we consider adding. As the leading spatial data company out there, Matterport may have a promising future ahead, but we’ll stay on the sidelines until the valuation comes down and subscriptions become a more dominant revenue segment.

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