Should Shares of Matterport (MTTR) Be in Your Portfolio?
The digital transformation has enabled companies to start leveraging disruptive technologies to deliver value to customers and enhance growth and productivity. In the past two years, the pandemic boosted this trend, as consumers largely shifted to online platforms. In this changing landscape, companies had to further boost technology adoption and accelerate digital transformation to respond to their customer’s needs.
In this article, I will analyze Matterport (MTTR), one of the companies that is leading the spatial data industry and that is driving the digitalization of the built world.
Through its three-dimensional (3D) data platform, MTTR’s solutions are able to turn a physical space into its digital twin, which can be used to design, build, operate, promote, and understand a space. Its platform works with a range of 3D cameras, 360 cameras, and iPhones. MMTR also offers on-demand solutions for customers who need to capture multiple properties. Moreover, its application programming interfaces (APIs) help to build capabilities and custom add-ons on MTTR’s platform. This allows MTTR to serve a wide range of industries like real estate, 3D photography, retail, travel and hospitality, homeowners, insurance and restoration, architects, engineering, and facilities management.
MTTR has a strong stock performance and its fast expansion in international markets should support sales
Since the beginning of the year, shares of MTTR advanced robustly, up 117.3%, which bodes well for the company’s future stock performance.
Recently, MTTR announced the free distribution of its 3D Capture software to Android users worldwide, enabling active Android smartphones to instantly create a dimensionally accurate digital twin of buildings and spaces with the devices they already own. With this announcement, MTTR aims to sharply accelerate its progress toward digitizing the built world, but also hasten the company’s international expansion across Asia Pacific, Europe, the Middle East, and Africa where Android market share is especially concentrated.
Moreover, businesses and users adopting MTTR’s 3D solutions are seeing multiple benefits which is a good sign for MTTR’s long-term revenue growth. The photorealistic digital twins and the dimensionally accurate physical spaces offered by MTTR provide a differentiated brand experience, a superior customer experience, and higher client satisfaction, which is a game-changer that should boost the sales of its customers, driving revenues higher.
Top line growth is impressive, but the company remains unprofitable and overvalued
The spatial data company is expected to see sales rise significantly in the next two years, as analysts anticipate that MTTR’s top line will grow by 57.6% to $186m next year and by 65.1% to $307m in 2023. On the other hand, the company’s bottom line is in poor condition. MTTR’s net loss is expected to jump by 3.5x this year, reaching a figure of $493m compared to $140m in 2020, representing a net margin of -41.6%. Moreover, in 2022 the consensus of analysts anticipates a further acceleration, as MTTR’s net loss should bottom to $541m, which does not bode well for current shareholders.
The financial structure of MTTR is in bad shape for the moment, despite the net cash position of $664m in 2021. Indeed, MTTR is burning a lot of cash and at its current cash burn rate, it will need to raise capital or debt in the next 13 months to sustain its growth prospects. Nevertheless, MTTR is investing massively to develop its services, as the company is expected to allocate $473m in CAPEX this year, representing nearly 4x of the company’s sales.
However, analysts are bullish for the moment, as all four analysts following MTTR are recommending a long positioning, with an average 12-month target price of $21.5 per share, this corresponds to a downside of around 4.2% compared to its current share price.
MTTR’s valuation metrics are overvalued compared to industry peers. With a P/S ratio of 56.94x and EV/Sales of 56.63x, the company is more expensive than one of the leading software companies on the market, Salesforce.com Inc. (CRM) which trades at respective ratios of 12.59x and 12.84x.
Investors should brace for volatility in MTTR this week, due to the release of MTTR’s first quarterly financial results since its IPO on Wednesday, November 3rd.
However, MTTR’s stock performance has been remarkable since its listing and its leading position in the data spatial industry provide a key positioning to gain additional market share.
Yet, at the moment, I believe MTTR shares are expensive compared to its peers and even if the company is investing massively to hasten its growth, MTTR remains unprofitable, which is not a great sign in the long term. That being said, I am bearish on MTTR and believe that there are more downside risks than upside potential in the near to medium-term.