Real estate focused virtual reality platform Matterport (NASDAQ:MTTR) reported results in line with analysts' expectations in Q2 FY2023, with revenue up 38.9% year on year to $39.6 million. However, next quarter's revenue guidance of $39 million was less impressive, coming in 6.59% below analysts' estimates. Matterport made a GAAP loss of $56.5 million, improving from its loss of $64.6 million in the same quarter last year.
Matterport (MTTR) Q2 FY2023 Highlights:
- Revenue: $39.6 million vs analyst estimates of $39.3 million (small beat)
- EPS (non-GAAP): -$0.07 vs analyst estimates of -$0.08
- Revenue Guidance for Q3 2023 is $39 million at the midpoint, below analyst estimates of $41.8 million
- The company dropped revenue guidance for the full year from $162 million to $157 million at the midpoint, a 3.09% decrease
- Free Cash Flow was -$15.1 million compared to -$23.1 million in the previous quarter
- Customers: 827,000, up from 771,000 in the previous quarter
- Gross Margin (GAAP): 40.3%, down from 41.1% in the 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.
Sales Growth
As you can see below, Matterport's revenue growth has been strong over the last two years, growing from $29.5 million in Q2 FY2021 to $39.6 million this quarter.
This was a standout quarter for Matterport with quarterly revenue up 38.9% year on year, above the company's historical trend. On top of that, its revenue increased $1.57 million quarter on quarter, a strong improvement from the $3.15 million decrease in Q1 2023. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Matterport is expecting revenue to grow 2.65% year on year to $39 million, slowing down from the 37.4% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 11.1% over the next 12 months.
Customer Growth
Matterport reported 827,000 customers at the end of the quarter, an increase of 56,000 from the previous quarter. That's a fair bit slower customer growth than last quarter but in line with what we've observed in past quarters, suggesting that the company still has decent sales momentum.
Profitability
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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 40.3% in Q2.
That means that for every $1 in revenue the company had $0.40 left to spend on developing new products, sales and marketing, and general administrative overhead. Matterport's gross margin is poor for a SaaS business and it's dropped significantly since the previous quarter. This is probably the exact opposite of what shareholders would like to see.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Matterport burned through $15.1 million of cash in Q2 , reducing its cash burn by 54.4% year on year.
Matterport has burned through $99.3 million of cash over the last 12 months, resulting in an uninspiring negative 64% free cash flow margin. This poor FCF margin stems from Matterport's poor unit economics or a constant need to reinvest in its business to maintain market relevance.
Key Takeaways from Matterport's Q2 Results
Although Matterport, which has a market capitalization of $964.5 million, has been burning cash over the last 12 months, its more than $445.6 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.
We struggled to find many strong positives in these results. As for negatives, its full-year revenue guidance was lowered and missed analysts' expectations. Next quarter's revenue guidance also missed Wall Street's expectations, although adjusted EPS guidance was slightly above. Overall, this was a mediocre quarter for Matterport. The stock is flat after reporting and currently trades at $3.14 per share.
Is Now The Time?
When considering an investment in Matterport, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter. We cheer for everyone who's making the lives of others easier through technology but in case of Matterport, we'll be cheering from the sidelines. Its revenue growth has been solid, though we don't expect it to maintain historical growth rates. But while its very efficient customer acquisition hints at the potential for strong profitability, the downside is that its gross margins show its business model is much less lucrative than the best software businesses and its growth is coming at a cost of significant cash burn.
Given its price to sales ratio based on the next 12 months is 5.4x, Matterport is priced with expectations of a long-term growth, and there's no doubt it's a bit of a market darling, at least for some. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.
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