Metaverse Play Matterport Has Too Many Red Flags for Investors

Matterport (NASDAQ:MTTR) delivered some strong growth metrics last quarter. Nonetheless, given the valuation of MTTR stock — which remains quite elevated despite its recent retreat — the company’s revenue increase was not very impressive.

An image of a bedroom traced with white abstract lines

Source: Matterport

Even more discouraging was the company’s 2022 guidance, which indicates that Matterport’s growth will be quite lackluster this year. Given these points, I believe that Matterport is starting to encounter tough competition and that there may not be as much demand for its products as those who are bullish on MTTR stock believe.

Some Strong Growth Metrics for MTTR Stock

In Q4, following the debut of Matterport’s app on Android, the app was downloaded more than 200,000 times from Android’s app store. Also last quarter, Matterport’s subscription revenue jumped 32% year-over-year to a record $16.5 million.

Additionally, the company’s Q4 “net dollar expansion rate” came in at an impressive 110%, indicating that its current customers are pleased with its products. According to the company, “Net Dollar Expansion Rate by quarter compares the revenue from active subscriber accounts in a given quarter, excluding variable revenue, to the revenue generated in the same quarter one year later by those same accounts.”

Also very impressive was the 69% YOY surge in its Q4 services revenue, which was $3.7 million. Encouragingly, the increase suggests that Matterport’s customers are using its products a great deal, while Matterport’s Services revenue is well-positioned to climb much further.

Disappointing Top-Line Growth and Guidance

Matterport’s Q4 revenue increased just 15% YOY to $27.1 million. At the midpoint of its Q1 sales guidance range of $25.5 million to $27.5 million, its revenue would actually be down 2% YOY.

The company made $111 million in revenue in 2021. For all of 2022, at the midpoint of Matterport’s $125 million to $135 million top-line guidance, the company’s sales would increase just 17% YOY.

The Q1 guidance is obviously not very impressive and constitutes a red flag for MTTR stock.

Certainly, YOY revenue growth in the mid-teen percentage levels is not very impressive for an unprofitable company whose stock is trading at a forward price-to-sales ratio, based on analysts’ average 2023 revenue estimate, of about nine times.

And, in light of the stock’s valuation, Matterport’s Q1 guidance is quite worrisome.

What’s Behind Matterport’s Disappointing Growth and Guidance?

Matterport cited the change of of a deal with a “large enterprise” into subscription payments, rather than a licensing deal, along with supply-chain issues as two factors that slowed its revenue growth last quarter. Those issues obviously negatively impacted its Q4 revenue to some extent. And, to some extent, the company’s weak guidance could be attributable to the company’s belief that it will encounter similar issues in the future.

However, plenty of other companies have managed to grow revenue at a far greater rate than Matterport despite supply chain issues. Consequently, I doubt very much whether Matterport’s fairly anemic Q4 revenue growth and weak sales guidance were caused entirely or even primarily by supply chain and timing issues.

Rather, I believe that the competition and demand issues that I raised in my prior column had a meaningful role in pushing down the company’s Q1 revenue growth and its 2022 sales outlook. More specifically, as I noted in a previous article about MTTR stock, “160+ firms are already involved in the metaverse. It’s a good bet that dozens of these companies will become direct competitors to Matterport by helping businesses utilize the metaverse to make sales.”

Additionally, I pointed out that companies have been working on the metaverse for decades, yet it has never generated huge amounts of sales. As a result, I believe that the forecasts of those who are bullish on MTTR stock for a sudden jump in spending on the metaverse could be mistaken. Indeed, Matterport’s Q4 results and guidance provide evidence to support that conclusion.

The Bottom Line on MTTR Stock

Matterport posted some impressive Q4 growth metrics, but its overall revenue growth was not very impressive, and its revenue guidance was very disappointing. I believe that the results and guidance, taken as a whole, indicate that the company’s fundamentals are not very strong.

Therefore, I advise investors to sell MTTR stock.

On the date of publication, Larry Ramer 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 Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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