The market has continued to cool around Matterport (NASDAQ:MTTR) stock. Most would argue that Matterport simply got too hot too quickly. As is often the case with growth stocks in newly emerging sectors, initial enthusiasm was high. Perhaps it was too high.
Therefore, it isn’t that surprising to some that MTTR stock is trading around $10, currently at $9.56. Proponents of that bearish theory would likely point to the idea that early metaverse enthusiasm was overblown. Thus, Matterport was simply a beneficiary of the Meta Platforms (NASDAQ:FB) rebrand. Now it is facing the swinging of the pendulum in the other direction.
I’d agree with that somewhat, but it’s a bit more complicated than that.
Not All About Meta
If you have been following Matterport, it’s probably only been since very recently. The company was relatively obscure prior to Facebook’s Oct. 28 rebrand into Meta Platforms.
Here’s the thing, though: Matterport was already trading at $19 when Meta Platforms made its big move on Oct. 28. If Matterport’s price only increased because of the Meta halo effect, then something else is at play right now.
What I mean is that MTTR stock currently trades around $10. One could make the case that it shouldn’t drop far below $19 if the Meta rebrand was its only catalyst. It would have to have been something internally wrong for the firm to drop all the way to $10.
I think the explanation is very clear. The market is continuing to digest Matterport’s Nov. 3 earnings report long after it was released.
Digesting November News
It seems a bit counterintuitive that the market should be punishing Matterport for a November earnings report given that it is now late January. However, timing matters here. The Meta Platforms rebrand happened a few weeks before Matterport’s earnings dropped.
All the market cared about was that Matterport was associated with the metaverse. The market had little regard for earnings at that time.
However, the market now recognizes that Matterport isn’t the only metaverse play and is giving those earnings a thorough analysis. And that’s a problem for MTTR stock.
Earnings Boomerang for MTTR Stock
Those earnings are boomeranging back to haunt the company. On Nov. 3 the notions that third-quarter (Q3) total subscribers were up 116% year-over-year (YOY) and subscription revenue was up 36% were enough to satisfy any nagging doubts.
Facebook had just become Meta, so any metaverse play was a good play, the thinking went. Besides, the company had $640 million in gross proceeds from its business combination with Gores Holdings VI, anyway.
It didn’t make much sense to go against the grain at that point. That isn’t the case now.
There were some real issues going on. Company wide revenues increased to $27.655 million in Q3, up slightly from $25.074 million a year earlier. But that increase was choppy. Subscription revenue increased 36%, reaching $15.677 million.
But licensing revenues dropped from $3 million all the way to $118,000 in the same period. And that was hardly the only issue. The gross margin decreased from 60% down to 55% concurrently.
The $1.536 million the firm reported in net income in Q3 ‘20 became a $14.032 million net loss in Q3 ‘21.
And my guess is that investors are asking bigger questions now. Chief among those questions is total addressable market opportunity.
Total Addressable Market
Matterport believes it sits in a market valued at $240 billion. But now that the metaverse talk has calmed some, it’s wise to understand what that really means.
Matterport recorded $27.655 million in revenues in Q3. That is a drop in the bucket relative to that total addressable market figure. That means Matterport is a very small firm, relatively speaking.
The notion that it has captured a massive portion of the early market seems less and less logical.
What to do With MTTR Stock
I actually still like Matterport. The analysts covering it do, too. But I want to point out what can happen sometimes. Hype can overpower rationale. I think that’s a partial explanation of why MTTR stock is now down. The meta news was too overpowering and rationale is now catching up.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.