I’ve never written about Matterport (NASDAQ:MTTR) before. Still, when I heard that its spatial data platform is handy for the construction industry, I became more than intrigued about MTTR stock.
My wife is a partner in a small construction firm in Halifax, Nova Scotia, where I live. Her company is building a property on the ocean. Once it’s completed, I’m sure she’ll investigate the idea of creating a digital twin of it with Matterport’s platform.
Not only does the usefulness of Matterport’s platform for the construction industry grab my interest, but the fact that Alec Gores was part of the SPAC (special purpose acquisition company) that merged with Matterport also intrigues me.
While Donald Trump is giving SPACs an even worse reputation than they already had, Alec Gores has spent years using them to make intelligent bets on industries and companies. His SPACs are outliers because they generally turn into legitimate, successful businesses.
Matterport is losing a considerable amount of money, as it generated $21.9 million of losses, excluding certain items, for the first nine months of 2021 on $84.1 million in sales. But as long as Gores remains associated with Matterport, I can’t help but think that aggressive investors would be wise to buy MTTR stock, especially if it falls into the teens.
Here’s why I believe that.
The Gores Group and MTTR Stock
A great deal of water will pass under the bridge before Gores Guggenheim merges with Polestar, an electric-vehicle maker that was spun off from Volvo (OTCMKTS:VLVLY).
In the meantime, I want to point out that affiliates of the Gores Group have sponsored 13 blank-check vehicles so far, the most of any single investor in America. Gores Guggenheim is the most recent SPAC launched by Gores to go public. It raised $750 million through an IPO in March.
Page 3 of Gores Guggenheim’s prospectus points out that Alex Gores launched his first blank check company, Gores Holdings, in 2015. That SPAC raised $350 million. Investors paid $10 per unit for one common share and one warrant which gives them the right to purchase one-half of a share for $5.75.
Gores Holdings ultimately combined with Hostess Brands (NASDAQ:TWNK), which makes Twinkies.
If you bought two units of Gores Holdings and exercised the warrants, your total cost was $31.50 for three shares of TWNK stock. Those three shares are now worth $55.47, representing a cumulative return of 76%.
If you’re still holding Hostess’ shares, I’d hang on to them. Morgan Stanley just named Hostess its top U.S. food stock. So 2022 is lining up to be a good year for the shares.
Gores Group and Guggenheim Partners are working together on Gores Guggenheim (the recent SPAC that’s expected to merge with EV maker Polestar). The firms will presumably team up on more SPACs in the future, and their combined experience in private equity ought to give investors a leg up on the rest of the SPAC competition.
Matterport’s Total Addressable Market
The company’s June 2021 presentation to analysts showed that it generated just $4 million in annual recurring revenue (ARR) from its top ten potential customers. However, it estimates that it could eventually generate $120 million annually from those same customers. Thus, its potential is significant.
Hostess’ merger presentation from February suggested that its total addressable market (TAM) was $1.2 trillion. If it gets 5% of this market, its annual sales would be $60 billion. In the 12 months that ended in September, its revenue was $85.9 million, a far cry from $60 billion.
Now, don’t think for a minute that Hostess’ annual sales will actually surge to $60 billion. If I believed that, I’d sell everything and wait for my multi-million payday around five to ten years in the future.
If you are concerned that Matterport’s revenue in Q3 only increased by 10% over the same period, don’t be. It continues to transform its business into a subscription-based model from a product-and-licensing-based one. Last quarter, it had 385,200 free subscribers and 53,800 paid subscribers, or 439,000 subscribers in total.
In Q3, its subscriber revenue grew 36% year-over-year to $15.7 million, accounting for 57% of its overall top line. That was 11 percentage points higher than the same period a year earlier.
Matterport’s gross margin for subscription revenue is 75%, considerably higher than the gross margin that it obtains from products and services. As its subscription revenue becomes a greater percentage of its overall sales, its profitability will increase.
It’s only a matter of time.
The Bottom Line
I like Gores Guggenheim’s decision to merge with Polestar. My research on Matterport has led me to believe that it is another excellent target which will make a great deal of money for Alec Gores in the future.
As I said at the beginning of this column, if you can get MTTR stock in the teens, you should run, not walk, to buy some. For those who are looking to hold onto the shares for three to five years, I think that you will make a significant amount of money by buying them at their current levels.
That said, you can expect the shares to be quite volatile in 2022. So make sure to put aside some funds to buy the name under $20.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.