Earnings season hasn’t been half bad: 77% of the reports have topped expectations on revenues and earnings, according to FactSet’s S&P 500 Earnings Insight. And yet tech stocks, in particular, have taken some beatings! Metaverse stocks are no exception.
This week’s earnings from Matterport (NASDAQ:MTTR) and Roblox (NYSE:RBLX) triggered double-digit declines in each stock. And yet neither report came close to the painful news from the Meta Platforms (NASDAQ:FB) formerly known as Facebook – which saw daily active users (DAUs) decline for the first time in its 19 years!
So, are MTTR and RBLX simply the latest growth stocks to suffer from a rising-interest-rates environment? Let’s peek beneath the hood and see what’s going on with Matterport and Roblox.
Matterport: Tiny But Growing Fast
Matterport has a very different business model than either RBLX or FB. It makes cameras and software to create “digital twins” of real-world spaces. For example, in its latest partnership with the real-estate broker Midland Holdings, potential buyers and renters will be able to assess Matterport digital twins of the properties (in China, Hong Kong, and Macau), fully furnished. Not only can they take a virtual tour… the platform even lets you buy the furniture shown in the “digital staging” of the property!
These digital twins are perfect for augmented reality (AR) programs, and one day could be used to create a hyper-realistic metaverse. Matterport remains the “clear market leader” here, having captured 20 billion square feet across 177 countries as of 2021. Below is a “wireframe” image from Matterport, illustrating the spatial calculations behind each digital twin:
Besides cameras, there’s also a free app to capture digital-twin images on your smartphone. And far from declining like Facebook, Matterport nearly doubled its total subscribers in Q4, to 503,000. Subscription revenue rang up to $16.5 million from 55,000 paying subscribers. Year-over-year, these figures represented +32% and +25% growth, respectively.
As for earnings, Matterport posted a non-GAAP net loss of -$0.10 per share, which was about in-line with expectations. (The company’s non-GAAP calculation is most helpful, as it excludes the huge expenses of the SPAC merger that brought Matterport public in July.)
This -$0.10 per share was about in-line with Wall Street expectations… and total revenues of $27.1 million (up +15%, year-over-year) was a sizeable beat. Yet MTTR is off -15%, post-earnings. So, what’s the problem here?
One sore spot could be that Matterport is having trouble meeting “robust demand for the Pro2 3D Camera, which comes with paid SaaS subscription,” due to “a critical chip component that is currently in global shortage” thanks to the supply crunch, reports Seeking Alpha. So, when you compare to the previous quarter (rather than Q4 2020), you see that subscriptions have basically stalled since Q3: up about 2%. And overall revenues are down -8.2%.
“I believe that we could have seen year-over-year growth in our product revenue had we been able to satisfy all of the demand,” said Matterport’s CFO on Wednesday’s earnings call. Luke Lango, who recommends MTTR for his Innovation Investor portfolio, agrees – but notes that these cameras are “a capital-intensive, low-margin business.”
In fact, Luke argues: “The best possible outcome for Matterport long-term is that it makes its smartphone capture software so good that it obsoletes the need for additional cameras.”
In the meantime, Matterport is spending a LOT more on its future growth. Sales & marketing nearly tripled in the fourth quarter, and R&D expenses basically doubled between releasing new Matterport Axis gear and launching the Matterport app for Android phones.
Along the way, “Matterport will continue to virtualize physical spaces in increasing volume over the next several years. Revenues will rise. Profit margins and profits will rise. And the stock price will rise, too,” Luke writes, noting that the analyst consensus projects MTTR stock to more than double from here!
Roblox: Growing, But Can It Monetize?
In the meantime, Roblox currently comes closest to what Zuck’s envisioning: a 3D world where millions of users gather with friends, play games, develop their own… and spend, spend, spend.
If you’re not familiar with Roblox, you’re probably not a gamer – or a parent. Roblox users are overwhelmingly children and teens, hitting up Mom and Dad when they want to make in-game purchases, like accessories for their avatar, or a private room to game with their friends.
In an average day, 49.5 million users are coming to Roblox, as of the Q4 report; this was a +33% increase, year-over-year. These users spent $770 million worth of “Robux,” which was 20% more than the year-ago quarter. And it was a little light of Wall Street’s expectation (for $772 million.)
To achieve that growth, Roblox has been dropping some major dollars.
Spending on “infrastructure and trust and safety” rose 73%, year-over-year, to $136 million. Sexual content is something Roblox constantly has to identify/stamp out, given its very young user base, so it’s great that they’re investing in this! But that’s not the only major spend. R&D nearly tripled, year-over-year, to $173 million. And Roblox spent 74% more on sales and marketing.
In contrast, “bookings” (when users buy Robux) have been running at a 20%-30% growth rate. This can be “a sign that the firm is running out of customers,” as “companies in ‘hockey-stick’ growth should typically see marketing costs decline relative to sales,” which Tom Yeung, CFA, insightfully pointed out in Wednesday’s Moonshot Investor.
What will it take for Roblox to see its investments pay off? Branch out beyond the elementary- and middle-school crowd: “The older demographic will likely have more cash to buy Robux than the pre- or mid-teens who had to rely on their parents,” says this analyst for Seeking Alpha. Roblox is making strides there: As of Q3 and Q4, users over age 13 finally outnumber those under 13.
It’ll help when “Roblox integrates more immersive metaverse experiences into its platform,” which is expected by this summer, Luke Lango writes in Innovation Investor – where he is “near-term bearish but long-term bullish” on RBLX.
The logical bridge between kids gaming in their room – and the “real world” they’ll enter as adults – is their education. So, if schools and universities use Roblox’s developer platform to teach STEM, the students may stick with Roblox (or future metaverses it builds). No wonder the company set aside $10 million as grants to non-profit educational programs on Roblox.
Beyond this sort of expansion… let’s take this a step further. Here’s what could REALLY take metaverse companies to the next level: a move into the Web3 future.
Meanwhile, in Decentraland…
While RBLX and MTTR have done a great job attracting users but are still working on monetizing them… Decentraland (MANA-USD) has a user base that’s still tiny compared to theirs – but has done a fabulous job monetizing them!
After all, when you buy and sell within a Web3 metaverse like Decentraland, you’re not really spending on the game… You’re spending in the game – using the MANA crypto to buy and sell NFTs. Their real-world value on the blockchain accrues back to YOU the moment you realize the proceeds in your crypto account.
In other words, these Web3 metaverses are economies in themselves. It’s telling that JPMorgan (NYSE:JPM) – once the loudest and proudest crypto hater around – is setting up shop in Decentraland. This must be the type of platform JPM expects to realize “the market opportunity estimated at over $1 trillion in yearly revenues” in the metaverse. (JPMorgan’s words, not just mine!)
As such, Decentraland is bringing in WAY more capital, per user, than its “Web 2.0” peers. These finances are structured quite differently: Decentraland is not a corporation with a traditional revenue stream; it is governed by its users, not by a company. But when you go by the transaction volume of its MANA crypto, we see that Decentraland was a $42.5 million marketplace in Q4 – with only 18,000 daily active users!
This $2,363 transacted per DAU compares to $53.88 revenue per subscriber to Matterport apps… and just $15.57 in bookings per DAU for Roblox!
That contrast really underscores how successful metaverse projects need to provide real utility. By the numbers, Decentraland and Matterport are doing the best job there.
Now imagine if Matterport starts providing its digital twins inside a Web3 metaverse. The utility for digital tourism and retail alone could be huge!
And I’m not the only one to see the potential: Just look at NVIDIA’s (NASDAQ:NVDA) huge investment into its digital twin platform, NVIDIA Omniverse. That business segment, which NVIDIA calls “Professional Visualization,” just grew another 109%, year-over-year! Evidently, there’s one thing that a chipmaker, a children’s gaming company, a 3D visualization company, and big banks can all agree on: The metaverse is the future.
On the date of publication, Ashley Cassell 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. To have more news from The New Digital World sent to your inbox, click here to sign up for the newsletter.