If you’re looking for a good way to play the metaverse trend, look no further than Matterport (NASDAQ:MTTR) stock. We first mentioned Matterport as one of our favorite Special Purpose Acquisition Company (SPAC) ideas in our Behind the Wall series back in September. Founded in 2011, Matterport takes a real-life physical space and transforms it into a digital “twin” — that is, a 3D model using a combination of different types of cameras, software and applications.
If you’ve ever seen a 3D virtual property tour, you’re already familiar with Matterport’s technology. This digital 3D model can be used in many ways, such as presenting a realistic look at a home that a real estate agent can use for virtual tours that reach far more potential buyers than a traditional weekend open house.
But the company’s value proposition doesn’t end with real estate. In fact, the applications for Matterport’s technology are immense — ranging from retail, construction, engineering and more. As more of the physical world becomes virtual, it’s easy to see that the addressable market for Matterport’s technology is massive. It’s essentially every building and every country in the world.
Within the estimated 20 billion spaces around the world suited for 3D reconstruction, Matterport estimates the serviceable addressable market to be 1.3 billion spaces worldwide. If you do the math, you’ll see that Matterport has penetrated less than 1% of its addressable market. Simply put, this story has legs.
Here’s a closer look.
MTTR stock: First-Mover in a Hockey Stick Growth Market
The first reason to like MTTR stock: it’s a first mover in a massive and largely untapped digital reconstruction market. The company claims 5.6 million “spaces” under management– that is, digitized building scans. It also estimates it has 100x the amount of spaces on its platform as the entire rest of the market.
Matterport breaks down revenues into four categories:
- Subscription (~52% of sales) offers subscription plans starting from single user/single space to multiple users/unlimited spaces. Pricing is based on the number of users and active spaces. Management expects more than 80% of revenue to be subscription-based by 2025.
- Product (~39% of sales) comes from sales of the company’s Pro2 3D camera. The Pro2 features 2D image capture, as well as spherical image creation, 360-degree content, and it can automatically generate both 2D and 3D floor plans for rooms or buildings captured using the camera.
- Services (~10% of sales) are primarily on-demand capture services provided by Matterport, as well as in-app purchases, such as schematic floor plans made on Matterport’s iPhone or Android apps.
- License (~7% of sales) solutions allow customers access to the company’s proprietary digital twin data. Revenue here is bumpy as the licenses are perpetual.
Scalable Business Model
The second reason to like Matterport is it’s incredibly scalable business model. Operating a freemium model (i.e. free basic features and charging a premium for advanced features), the company has roughly 385,000 free subscribers and 54,000 paid subscribers. Customers are drawn in with free subscriptions. Then, they gradually transition into paid subscribers as they recognize the value and cost-saving potential of Matterport’s 3D data.
The upshot of subscription-based businesses is two-fold. First: high margins. Matterport’s subscription business operated at a ~77% gross margin during the quarter, indicating the potential for substantial profitability growth as the company continues to scale its subscriber base and transition away from product-based sales.
Second, because they’re recurring, subscription-based business models offer increased visibility into future revenue streams. That means less volatility than ‘book-and-ship’ product manufacturers, who are subject to bumpier demand trends.
Early in the Adoption Curve
As I mentioned before, Matterport is in the very early stages of acquiring customers. The company only recently rolled out its Matterport Capture app for iPhone last May. The company launched the Android version in May of this year. Combined, these launches have resulted in a 29x increase in subscribers from 2018 to present.
A good case study that showcases Matterport’s value proposition is Cushman & Wakefield (NYSE:CWK), one of the world’s largest commercial real estate services companies. From 2018 to 2020, Cushman & Wakefield increased their spend with Matterport by over 26x.
Ericsson (NASDAQ:ERIC), one of the largest cable operators in the U.S., uses Matterport’s imaging technology to manage thousands of cable structures remotely. Ericsson has increased its spending with the company by 60% from 2019 to 2020. Also an FYI: Ericsson Ventures is a Matterport investor.
Already, Matterport’s customers include 13% of the Fortune 1000, with hockey stick growth potential. Last quarter, the company increased its spaces under management by 75% as it continues to gain market share.
The Bottom Line on MTTR Stock
MTTR stock is up over 80% since its July IPO, which took place via a SPAC merger with Gores Holdings VI. With shares trading at $26, there’s no doubt about it: MTTR stock has had an awesome run. This is an early-stage company and I’d expect continued volatility. I’d look to buy the stock on pullbacks.
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On the date of publication, Joanna Makris 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.
Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media, and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.
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