Yesterday was an ugly day for the market — thanks, Putin — and an especially ugly day for Matterport (NASDAQ:MTTR) stock. The hypergrowth 3D imaging tech company reported sub-par earnings, and its stock dropped more than 20%. Among the wreckage, though, we sense a golden buying opportunity.
In fact, our numbers suggest that from current levels, Matterport stock could surge more than 100% higher over the next few months alone.
For those who are unfamiliar with Matterport, the company is a commercial play on the metaverse.
It was founded in 2011 with the intent of creating immersive, 3D digital twins of physical spaces. Basically, the company is trying to virtualize real-world locations using cameras, smartphones and its proprietary software. The idea here is that, by creating a spatial data library of the world’s physical places, location owners can glean unique and value-additive insights to better manage them.
Fast forward a decade. Matterport is executing very strongly on that vision. Today the company has over 500,000 subscribers, who have collectively virtualized about 6.7 million physical spaces using its software.
Some customers include Redfin (NASDAQ:RDFN) — who uses Matterport’s tech to digitize for-sale homes and allow prospective buyers to take virtual tours — and Orange Theory Fitness — who uses Matterport to virtualize their fitness studios and optimize the use of equipment.
Matterport’s long-term vision here is to virtualize every physical space in the world as companies more fully embrace the metaverse. Essentially, it hopes that every commercial office owner will use its software to manage office spaces, every hotel chain will use its software to advertise rooms, every real estate agency will use its software to promote virtual tours, every gym will use its software to manage inventory — so on and so forth.
Matterport Stock’s Huge Runway
The opportunity there is quite large. There are 4 billion commercial buildings globally that collectively own about 20 billion unique spaces. Matterport currently earns about $1.50 in revenue per space per month. At that rate, Matterport’s long-term revenue opportunity is $360 BILLION — versus just $111 million reported in 2021.
Indeed, the long-term growth runway at Matterport is very promising.
But investors didn’t care about that yesterday because Matterport reported terrible quarterly numbers. It eroded confidence in the company’s ability to capitalize on this long-term opportunity.
Spaces under management growth is slowing — from 75% in the second quarter to 63% in the third to 56% in fourth. Average revenue per space per month is dropping, too. Revenues rose just 14% in the fourth quarter. And worse yet, they are expected to drop 2% next quarter!
Does that sound like a hypergrowth company to you?
At issue are two things: One, supply chain issues are limiting Matterport’s production capacity of its cameras, leading to a drop in camera sales. Two, Matterport has made its smartphone capture software so good that it is cannibalizing demand for its cameras.
The result is a sharp drawdown in Matterport’s product sales — down 22% last quarter — which is the main driver behind its growth slowdown.
In it for the Long Haul
However, as long-term investors, we are not terribly concerned with this.
The product business could die for all we care. It’s a capital-intensive, low-margin business. Matterport’s gross margins on its cameras are just 24%. But gross margins on its software revenue are 77%. We view the best possible outcome for Matterport is that it makes its smartphone capture software so good that it ceases the need for additional cameras.
Under those circumstances, Matterport is an 80% gross margin business with highly scalable, annually recurring revenue streams. That’s much opposed to what it is today — a mixed hardware-software company with 50% gross margins and lumpy revenues.
Of course, that won’t happen anytime soon. So Matterport does need its camera business to rebound to revitalize its growth narrative. We think that will happen throughout 2022, as current supply chain disruptions ease with abating pandemic fears and policies.
In other words, by the end of this year, we think Matterport’s camera business will be back to firing on all cylinders. And the company will be back to its old self with 30%-plus revenue growth.
In essence, this is just a blip on the radar. Matterport will increasingly virtualize physical spaces over the next several years. Revenues will rise. Profit margins and profits will rise. And the stock price will rise, too.
Treasure in Matterport Stock
Forget yesterday’s numbers. Matterport is a long-term winner.
The stock closed at $6.54 yesterday. The average analyst price target on the stock is $16. The Morningstar fair value estimate is $14. Our modeling suggest shares are worth at least $20.
According to the people who run the numbers, we all think that the stock will rise by at least 115% over the next few months.
The investment implication? It’s time to buy the dip in Matterport.
That’s why, in our flagship investment research advisory Innovation Investor, we told subscribers to buy into Matterport stock yesterday.
In that research advisory, we ignore near-term stock price fluctuations and stay focused on investing in the world’s most innovative companies — with the biggest long-term growth potential.
Matterport stock falls under that umbrella. So do a few dozen other hypergrowth tech stocks with gigantic upside potential.
Best of all, those stocks are all in our Innovation Investor portfolio, where you can learn more about the best tech stocks to buy today!
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.