Matterport (NASDAQ: MTTR) is at the forefront of an exciting and emerging technology, but it is also up against some stiff competition and burning through money. In this segment from “The Virtual Opportunities Show,” recorded on February 1Motley Fool analyst Asit Sharma makes a deep dive into Matterport and its future potential.
Asit Sharma: I want to talk about a company called Matterport, MTTR. I’ve said about it on this show before. This is one that interests me because in some ways it’s a perfect play for the metaverse. It is a company in the business of creating digital twins through its own equipment, but also equipment that you or I may have. We’ll get there in a second. But I have some concerns about it not being a slam dunk yet and I’ll find out why. Nvidia may be involved there along with some other major players in this industry such as Autodesk.
But it is a pioneer of the concept of creating a virtual twin or digital twin of a physical environment so a one-to-one replica, almost of what we see when we look with our own eyes at an image. . They start with one end of the product. You see these fancy cameras they sell. But they’re actually more moving to a software standpoint so they’re like a software-as-a-service type company. You see there is a premium model here. They measure themselves in active spaces so if I make a replica of my living room, that’s space. You can already see their business purpose. They are mainly aimed at the real estate and retail market. They also work in aviation, that is, airports and increasingly they are trying to sell to end consumers like us.
Today, I want to work on their recent investor presentation to show you some of the highlights. Then I’m going to talk about why I want to take a deep look at their earnings which is projected to be around March the 10th. A company that has grown very fast. You can see their space under management has grown 92 percent year-on-year. They also have some value-added services here, like these procurement services. Going forward, they have really, I think, very impressive statistics in terms of how widespread their platform has become. They’ve got 10 billion square feet of space, they’re in 150 countries, more subscribers than I thought they have and 100 times more managed spaces than the rest of the market, which includes some very small private companies , but it also includes companies like NVIDIA that have more recently entered this space.
They say they are the pioneer here. In terms of bringing this technology to market, I would say definitely so. Here is an overview of the markets in which they are present. Honestly, I should come back here to see if I didn’t show it to you. Wait a minute, all right, we’re here. It gives you the original way in which they sold their Software, that is experts they have in major metropolitan areas across the United States, now they are in the UK. These experts will go into a physical space and they will make it a digital twin service. However, what’s pretty exciting about the company, is that it has ported its technology to iPhones and Android devices, so your iPhone can now do the same photo taking. It may not be the highest clarity as if we bought or rented the Matterport camera, but it allows them to go from being a gadgets company to something more powerful as a business proposition, that is a software company.
Just a few stats here that are really eye catching, their total market opportunity is $ 240 billion and one percent penetration, that would be $ 2.4 billion in annualized recurring revenue. If you look at some of the value added services they can provide, they think that the market is actually bigger when all these customers have become long term clients, they can provide data back to these clients and other services. It’s hard to imagine this potential until you can imagine some of the use cases they present, for example, if you were a builder, you would use Matterport Software to get your building as built. Instead of relying on the future in a blueprint or even in computer rendering, AutoCAD rendering a blueprint. You will have a one-to-one dimensional representation of your building as it climbs, so every pipe, every power line, every dimension down the corner line to remodel your building or work on your building if it needs to fix, so that’s a pretty persuasive use case. When you start listening to management’s description of where services can go, you’ll see that, if competition isn’t a factor, maybe that path to 12 billion is there.
Let’s take a look at some clients here that you’ll find that have gotten some really big heavyweights along with that Cushman at Wakefield as customers. Here, they’re just talking about the many ways in which they can grow, including a third party marketplace, which we’ve repeatedly seen in SaaS-style companies, just imagine. Salesforce.com o Service Today o Intuit to create these third party marketplaces around their platforms. This is where the use case started to really expand, customers are now expanding their use, it’s so dollar net expansion of 129 percent, so that’s yearly growth in annual net dollar retention, or expansion however you want it called mean. thus, not considering the churn, that is, if you just look at the dollar spending of all customers, on average, they spend 29 percent more than this time last year and this time last year they increased that cost by 112 percent, thus spending 12 percent more than in the fourth quarter of 2019.
Now why would I want to look at these earnings? Here’s what I don’t like about the company despite that growth and despite subscription services growing 36 percent annually, they’re still very small, they’re losing money because they’re gaining some market for their products and services , they are burning. some money. Let’s go to the cash flow statement here you can see the nine months ended September 30 of 2021, they have operating cash usage of $ 21 million and they have net purchases of property and equipment along with their capitalized Software, that’s where I’m going. to count on the whole bucket now. Let’s just round that to about six million for easy math, about 26 million negative free cash flow. Now in growing companies, if we see a long ramp in revenue, we reduce the early burnout of money.
The reason I want to take a closer look at earnings, the company has had a lot of excitement around it and is trading these amazing multiples of 30 and 40 times sales, even though it is very small and burning some money and not yet profitable. It’s something that I think in today’s era, in an environment of interest rates that are becoming quite aggressive in conjunction with rising inflation, we need to be more careful even with stories we like, like this one. I think Matterport needs to show a little more operating leverage for me, I want to see the subscription service portion of their business become a software company, really rise at such a strong rate in the next quarter, I want to of the certainty that the company can grow in this bulk.
Now, with the market taking such a beating, that price to sales ratio, if you will, let’s just call it its market capitalization compared to that next 12 months revenue, that multiple goes down, it’s a little more reasonable. Now if I translate to price to sales will be more 22, which is still really pricey. This was one of the cases where I really liked the technology. I like the management, even if the founders leave the team that runs it now, their team is very good, I think they can implement this vision, it is a question of appreciation and also, when you get the picture of large giants such as NVIDIA and Autodesk and Unity Software offering similar, if not the same products, is probably harder to grow in appreciation.
I haven’t let go of this one, I’m still intrigued by it, but I need to see more from the earnings, so that’s why Demitri was excited when he said we were instead talking about our stocks that we have this week. , let’s talk about our radar stocks for this earnings season that at the top of my list, guys, curious talaga ako sa kinita ng kumpanyang ito.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool counseling service. Let’s be motley! Asking an investing thesis-at least one of us-helps all of us think critically about investing and make decisions that will help us become smarter, happier, and richer.