The Rundown (8/17/21)
Matterport Inc is Transforming Buildings Around The World
Matterport is a company which primarily specializes in spatial data which focuses on digitizing and indexing the built world. The company’s 3D data platform enables anyone to turn a space into an accurate digital twin which can be used to design, build, operate and understand the space.
Matterport received significant attention earlier in the year when it announced its SPAC merger with Gores Holdings at a valuation of $2.9 Billion. The shares saw a significant run up, which resulted in a valuation of $8 Billion, but shares have fallen by 50% in recent months with investors being cautious about valuations. Is the correction in the share price a good time to revisit the stock?
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Transforming Global Spaces
Matterport provides a subscription model for offices spaces and retail stores which transforms physical space into immersive digital space. The world has over 20 Billion spaces with only around 1% digitalized so far. In just a few clicks, customers can schedule a capture appointment with the company’s network of capture technologies, which can scan digital twins of any property in the world.
The platform allows building owners, underwriters and occupants to manage the lifecycle of a building to manage maintenance and operations. A digital version of a building increases the value of the property by providing valuable insights. These insights can be combined and cross referenced with big data, which can create massive value for stakeholders in the future.
There are significant opportunities including maximising engagement, increasing compliance, remote inspection and streamlining construction. This is a culmination of the tectonic shift in the way people define a physical space and what it is capable of. This enables the company to pursue opportunities by being the first mover in the market.
There is a significant opportunity with a large portion of the market being offline and undervalued. The company estimates that it can save over $100 billion in unrealized utilizations and operational efficiencies for various companies. Matterport currently serves customers in numerous industries, including real estate, repair, architecture, insurance and design with most of the revenues being recurring in nature.
Highly Scalable and Proven Track Record
Matterport requires high powered 3D cameras to sense objects, but the mass adoption of LiDAR in smartphones will make it more convenient for customers to scan their environment. The company has identified 240 billion total addressable global market opportunity and estimates penetration in 200 million spaces by capturing just 1% of the market.
Matterport aims to achieve this through strong growth in its core market and by scaling its business in global markets which have high density properties. The company also expects ever expanding use case scenarios and can scale its enterprise services as it acquires larger new customers.
There are other significant opportunities by partnering with 3rd party developers to develop applications for spatial data services. More significantly for the company, it can optimize its SaaS model to drive adoption, expansion and account growth.
The company does this by generating awareness with its global visibility while making it a frictionless sign up process, thus driving high conversion rates. This has enabled Matterport to sign big name clients like Airbnb, Hyatt, LinkedIn and H&M.
Rapid Growth Drives Premium Valuation
Matterport continues to rapidly grow revenues through strong retention and customer loyalty. Revenues expanded from $46 million in 2019 to $86 million in 2020 with the company expecting FY21 revenues of $123 million. Matterport categorizes its revenues into subscriptions, licenses, services and products, with the high growth subscription vertical making up an impressive 52% of revenues, which should help with margin expansion. Management estimates strong momentum going forward, with revenues growing at a CAGR of 59% to over $747 million in 2025, with the share of subscriptions rising to 86% of the Total revenues.
The Net Dollar Expansion Rate, which measures revenue from active customers, grew 129% yoy, which demonstrates customer value. Additionally, as the total active subscriptions increase, the company estimates that gross margin will expand from 56% in 2020 to 73% in 2025. Despite this, management doesn’t expect the company to break even until 2024 due to increased operational costs.
In fact, even by FY25, the company expects net margins of around 10%, which should be a cause of concern for potential investors. The business has attractive unit with long term customer value which is equal to 12x the cost to acquire the customer. Currently, the company has a payback period of 9 months, which is expected to reduce further as it scales its customer base.
While the company expects to scale significantly and let unit economics prevail, the current valuations don’t forecast for the risk involved to get there. Matterport commands a valuation of $3.75 Billion currently, which implies a forward sales multiple of 17.5x for FY22 and 11.75x for FY23. At its high, the stock warranted a forward sales multiple of 40x.
Matterport commands a premium valuation compared to its own revenue forecasts and needs to surpass its targets to warrant the current stock price. While some of this can be attributed to the the company’s first movers advantage and significant leadership position in the market, investors should wait for shares to drop before taking a position.
Matterport continues to benefit from the current trend of digitalization of office space. The company has a proven track record and has successfully established partnerships with large enterprises, which should prove fruitful in the long run with the company’s SaaS model. There is significant opportunity ahead, with a vast untapped market, enabling significant opportunity for revenue growth and margin expansion.
The stock is currently trading at a premium valuation however and even based on the company’s own projections seems overvalued. While the company is promising from a technological standpoint, Investors should wait for a correction in the stock before building a large position.