Matterport (NASDAQ:MTTR) reported fourth-quarter (Q4) 2021 results on Feb. 16. While they were good, MTTR stock dropped on less robust Q1 and 2022 guidance. Now trading under $7, down from its Dec. 1 all-time high of $37.60, it seems wild to think that its shares could fall any further.
Who can forget Bill Gates’ CNBC interview last April? He suggested that some companies are going public too early via special purpose acquisition companies (SPACs), flipping on its head the traditional venture capital problem of companies waiting too long to make an initial public offering (IPO).
I’m a fan of the company’s technology and business, but one has to wonder if the billionaire was talking about Matterport.
Did it go public too early in its development? I’ll consider this possibility.
MTTR Stock Got Way Ahead of Itself
When Matterport merged with Gores Holdings VI on July 22, 2021, MTTR stock closed at $14.47. By the beginning of December, it was at $37.60, a 160% increase in 120 days. Annualized, that is 480%.
If this performance were for calendar year 2021, it would have delivered the second-best return behind GameStop (NYSE:GME), up 725% last year. As much as I’m bearish on GME stock, the specialty retailer does have almost $6 billion in annual revenue. Matterport could only muster $111.2 million last year, a far cry from Ryan Cohen’s transformation project.
Based on 261.7 million shares outstanding, Matterport’s market cap at its all-time high was $9.8 billion, 88.5x its 2021 revenue. How crazy is that?
According to Finviz.com, out of 1,712 stocks with a market cap greater than $2 billion and a price-to-sales ratio of at least 1x, only 21 have a price-to-sales ratio higher than Matterport’s hypothetical multiple.
In mid-December, when it was trading around $22, I said it was an excellent long-term buy. Instead, it has lost 68% of its value since. Investors weren’t nearly as excited about its digital twinning technology as I was. I got ahead of myself, as did many others. It happens.
Where to From Here?
As I look at its Q4 2021 results, I can’t help but think they’re inconsequential to the average investor. It had revenue of $27.1 million in Q4, 15% higher than Q4 2020. Investors want 50% growth. And they want it now.
In 2022, Matterport expects revenues of $130 million at the midpoint of its guidance, 17% higher than in 2021. So, again, it is perfectly acceptable growth, but not 88x sales growth.
At this 15% long-term growth rate, it will take Matterport 16 years to get to $1 billion in sales. The average investor will not wait 16 years for a tech stock to grow to $1 billion in revenue. They just won’t.
A lot can happen between now and then, but I have to think that a big chunk of the decline in recent months was from a lack of interest from investors. Matterport has a great story, but so do a lot of other publicly traded companies. A 15% growth rate does not signify it is special.
This is why I wonder if it should have remained a private company for a couple of years until its story got more potent and more backable.
In the Q4 2021 conference call, Chief Financial Officer JD Fay suggested seeing annual revenue growth of 50% once the supply chain constraints and labor markets get back to a pre-Covid-19 state.
Until it demonstrates this level of year-over-year growth in a single quarter, let alone an entire fiscal year, investors have decided it is guilty until proven innocent, rather than the other way around.
The Bottom Line on MTTR Stock
There is an actual argument to be made that Matterport did go public way too soon. However, now that the horse is out of the barn, all it can do is continue to execute its business plan and hope that investors will buy what it is selling.
If you don’t own MTTR stock, consider that it currently has a worst-case scenario in 2022 of a non-GAAP loss of just under $150 million. In 2021, it used $38.8 million in cash from operations on an adjusted loss of $46.9 million. That suggests it would use $124 million in cash from operations — $150 million multiplied by $38.8 million divided by $46.9 million.
That is 19% of its $668 million in cash, short- and long-term investments. So, it has three to four years of cash on its balance sheet, excluding further acquisitions. That is plenty.
The risk-to-reward is tilted in the aggressive investor’s favor at these prices.
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.