Real estate focused virtual reality platform Matterport (NASDAQ:MTTR) reported Q3 FY2022 results topping analyst expectations, with revenue up 37.3% year on year to $37.9 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $40 million at the midpoint, 3.16% above what analysts were expecting. Matterport made a GAAP loss of $58.2 million, improving on its loss of $167.9 million, in the same quarter last year.
Matterport (MTTR) Q3 FY2022 Highlights:
- Revenue: $37.9 million vs analyst estimates of $35.9 million (5.69% beat)
- EPS (non-GAAP): -$0.09 vs analyst estimates of -$0.14
- Revenue guidance for Q4 2022 is $40 million at the midpoint, above analyst estimates of $38.7 million
- Free cash flow was negative $44.4 million, compared to negative free cash flow of $33.2 million in previous quarter
- Customers: 657,000, up from 616,000 in previous quarter
- Gross Margin (GAAP): 43.1%, down from 51.2% same quarter last year
Founded in 2011 before any mass market VR headset was released, Matterport (NASDAQ:MTTR) provides the hardware and software necessary to turn real world spaces into 3D visualization.Real estate is the world’s largest asset class and as the designing, construction, and selling of real estate moves online there has been an increasing need for 3D real estate visualization. The internet has become the starting point for almost every property search. Buying, selling, and renting living spaces is a complicated process that historically involves setting up numerous in person showings even when consumers are using internet based real-estate platforms. As technologies continue to reduce the need for human contact and make complicated processes more efficient, real estate digitization has been slowed because people are uncomfortable buying or renting a home without seeing it in person. Matterport helps solve this problem by enabling its customers to create immersive 3D tours that replace in-person viewings. Matterport sells VR hardware to users so that they can capture their spaces in 3D. Matterport also sells software subscriptions that help users effectively leverage their VR spaces. Bringing homes online helps realtors get more enquiries but is also a useful tool for the design and construction process. Using Matterport’s platform, design-focused architects and contractors no longer have to be on site to do their jobs.
The demand for rich, interactive 2D, 3D, VR and AR experiences is growing, and while the ubiquitous metaverse might still be more of a buzzword than a real thing, what is real is the demand for the tools to create these experiences, whether they are games, 3D tours or interactive movies.
As you can see below, Matterport's revenue growth has been strong over the last two years, growing from quarterly revenue of $25 million in Q3 FY2020, to $37.9 million.
This was a standout quarter for Matterport, with the quarterly revenue up 37.3% year on year, which is above the trend for the company. On top of that, revenue increased $9.51 million quarter on quarter, a strong improvement on the $29 thousand decrease in Q2 2022, and a sign of acceleration of growth, which is very nice to see indeed.
Guidance for the next quarter indicates Matterport is expecting revenue to grow 47.6% year on year to $40 million, improving on the 14.8% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 35.4% over the next twelve months.
You can see below that Matterport reported 657,000 customers at the end of the quarter, an increase of 41,000 on last quarter. That is a fair bit slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Matterport's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 43.1% in Q3.
That means that for every $1 in revenue the company had $0.43 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.
Cash Is King
If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Matterport burned through $44.4 million in Q3, increasing the cash burn by 138% year on year.
Matterport has burned through $125.1 million in cash over the last twelve months, a negative 102% free cash flow margin. This low FCF margin is a result of Matterport's need to still heavily invest in the business.
Key Takeaways from Matterport's Q3 Results
Since it has still been burning cash over the last twelve months it is worth keeping an eye on Matterport’s balance sheet, but we note that with a market capitalization of $744.9 million and more than $487.4 million in cash, the company has the capacity to continue to prioritise growth over profitability for some time.
We enjoyed seeing Matterport’s impressive revenue growth this quarter. And we were also excited to see that guidance outperformed Wall St’s expectations. Zooming out, we think this was a great quarter and shareholders will likely feel excited about the results. The company is up 9.09% on the results and currently trades at $3.3 per share.
Is Now The Time?
Matterport may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. Although we have other favorites, we understand the arguments that Matterport is not a bad business. Its revenue growth has been solid, and analysts believe that sort of growth is sustainable for now. And while its gross margins show its business model is much less lucrative than the best software businesses, the good news is its very efficient customer acquisition hints at the potential for strong profitability.
The market is certainly expecting long term growth from Matterport given its price to sales ratio based on the next twelve months is 5.2x. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Matterport doesn't trade at a completely unreasonable price point.
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