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Matterport: Short-Term Headwinds May Present an Opportunity

Matterport (MTTR) is a spatial data company focused on digitizing and indexing the built world. We are neutral on the stock.

Matterport Faced Some Headwinds

Matterport has fallen significantly from its all-time highs. More recently, the stock price took another hit after its latest earnings report.

Although the company slightly beat on revenue and came in line with earnings, it missed on guidance by a lot. Analysts were expecting 2022 revenues to be approximately $160 million, but MTTR guided for $130 million at the midpoint.

In addition, revenue from its hardware products declined in the fourth quarter compared to the same period in 2020. To make matters worse, gross margins swung into negative territory. The company attributed this to supply chain issues but stated in the earnings call that demand remained strong:

Our product revenue was $6.6 million in the quarter compared to $8.4 million in a year-ago period. We continue to see strong demand throughout the quarter for our products, but as I noted in the third-quarter conference call, we were impacted by the full quarter of the global supply chain constraints.

This meant that we could not satisfy all the demand for our products, and as a result, we entered the first quarter of 2022 with one of our largest backlogs ever. 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.

Q4 2021 Results – Earnings Call Transcript

Management also went on to address the negative gross margins in its products segment:

Product gross margin was negative 11% as compared to positive 39% a year ago. As I mentioned on our last earnings call, towards the end of Q3, we began expediting materials in short supply to meet customer demand. We also made tactical decisions to source parts from alternative suppliers or to pay higher prices to secure allocations. The combined impact of these factors drove the increase in our product cost of goods sold.

While it is not our intention to lose money on products, it’s also important to support our customers, and in most cases, the shipment of a Pro2 camera results in a new paid subscriber to our platform. In this situation, we expect to recover the current gross profit investment within the first four months of the customer’s subscription term with us on average.

Q4 2021 Results – Earnings Call Transcript

It’s good to see that management is focused on customer experience and is willing to make short-term sacrifices regarding gross margins in order to increase retention. It’s also encouraging to see that the loss on these products is being recovered once customers become subscribers.

Growth Catalysts

There are some important factors that investors need to look at before writing off Matterport. To begin with, the company’s 3D space scanning technology is incredibly useful.

It can take weeks for surveyors to manually measure and create floor plans for offices and buildings. Matterport can save companies weeks and tens of thousands of dollars with its technology.

Furthermore, Matterport’s main growth driver going forward is its shift towards a higher mix of subscription revenue. In Fiscal Year 2021, 59% of revenue came from subscriptions. MTTR plans to increase this mix to 86% by 2025.

This is a significant shift over the next four years and will lead to significant margin expansion. In fact, management expects gross margins to increase from 57% in 2021 to 73% in 2025. The combination of more predictable revenue and higher margins could lead to a multiple expansion as well.

Wall Street’s Take

Turning to Wall Street, Matterport has a Strong Buy consensus rating, based on six Buys assigned in the past three months. The average Matterport price target of $15.33 implies 142.2% upside potential.

Final Thoughts

Matterport is a fascinating company that has incredible potential going forward. We will be keeping a close eye on the stock, and waiting for a trend reversal.

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