Matterport (NASDAQ:MTTR) is a leading spatial data company digitizing the built world, that went public in July 2021, following a Special Purpose Acquisition Company (SPAC) merger with Gore Holdings VI. Since then, MTTR stock reached in February a 52-week bottom of $5.71 per share. Its market capitalization dropped 57.57% to $8.32 per share year-to-date.
This poor performance has been mainly due to the company’s weak financial results over the fourth quarter of 2021. Thee risk-off environment seen at the beginning of 2022 hasn’t helped much either. These headwinds seem however to be behind MTTR stock and the positive price momentum observed in the past few weeks is good news for Matterport’s shareholders.
With that being said let’s dive into the financials, valuation multiples, and upside potential of this metaverse company to see if it constitutes a buying opportunity.
MTTR Stock Has a Weak Profitability and Insufficient Cash
In the fourth quarter of 2021, MTTR stock beat revenue guidance by 1.94 million, up 15% year-on-year to $27.1 million, but missed earnings per share (EPS) generally accepted accounting principles (GAAP) consensus by 24 cents, posting a loss of 66 cents per share.
However, top-line growth remains favorable for the next two years. Revenues are expected to advance 21.6% this year to $135 million and to surge 51.9% to $205 million in 2023.
More worryingly, MTTR’s net loss is esteemed to deteriorate this year. After posting losing 338 million in 2021, Matterport’s yearly loss is forecasted to reach $508 million this year. This might bring additional bearishness to the company’s share.
The management announced a strengthening of MTTR balance sheet during the Q4 earnings presentation, with the:
… redemption of our public warrants, which resulted in another $104 million of cash proceeds from the exercise of warrants prior to redemption. Proceeds from the warrant exercises, along with the $640 million in gross proceeds raised in the third quarter, together provide us tremendous flexibility in allocating capital to accelerate our growth in 2022 and beyond.
Nonetheless, with MTTR’s reduced profitability, the company will have to raise capital sooner rather than later. Indeed, the company’s cash position stood at $404 million at the end of 2021. This was below its expected yearly loss of $508 million, implying that it will be unable to meet all engagements in the next year.
MTTR’s Multiples Are Stretched
MTTR stock price has plunged significantly since the merger with Gore Holdings. At this price, investors might consider it a buying opportunity. Nevertheless, the metaverse specialist has overvalued multiples compared to peers, with a forward EV (Enterprise Value)/Revenue of 14x and 2022e P/B of 7.2x.
Meta (NASDAQ:FB), a more diversified counterpart, which seeks to become the leading platform for shared virtual environments is exchanging at lower multiples, with 2022e EV/Revenue of just 4.16x and 4.08 forward P/B ratio.
Roblox (NYSE:RBLX), an online gaming platform considered as one of the closest companies to having a functioning metaverse, trades at a forward EV/Revenue ratio of 8.07x but has a massive 2022e P/B of 44.2x.
More Upside Than Downside Ahead
Despite the stretched valuation multiples and weak profitability, there seems to be more upside than downside ahead.
Last year, MTTR partnered with industry-leading companies such as Amazon’s (NASDAQ:AMZN) Web Services (AWS) and Autodesk (NASDAQ:ADSK) and announced earlier this month partnerships with companies in different sectors, such as construction, engineering, and marine transport.
More importantly, Matterport is signing strategic partnerships in the Brazilian market. Brazil is one of the largest property markets in the world with more than 500 million physical spaces. In this massive market, Matterport is leading the way to creating highly accurate digital twins.
This should boost the company’s recurrent revenues. These partnerships will promote Matterport’s market-leading spatial solutions, which is mainly based on a subscription based business model. These subscriptions account for 61% of total revenue.
In the past quarter, MTTR nearly doubled its subscriber base, up 98% year-on-year to 503,000 subscribers. For the moment, the company has not monetized most of this free subscription base. It is still focusing on democratizing its services.
Nevertheless and once it starts, revenues will shoot up, offering a significant upside for MTTR stock.
In this context and while MMTR is still trading in a bearish trend, Matterport seems to have reached a bottom last month. Despite weak financials, stretched valuation multiples, and recent selloff: MTTR stock is a buy. At current prices, the downside seems limited and investors looking to enter the metaverse space should consider this leading spatial data company.
On the date of publication, Cristian Docan 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.