Don’t Buy Matterport Stock Until It Turns Potential Into Profit

Spatial data company Matterport (NASDAQ:MTTR) went public in July following a special-purpose acquisition company (SPAC) merger with Gores Holdings VI. Matterport received $605 million in total cash in this SPAC deal, including $310 million from Gores Holdings VI and $295 million from other institutional investors. That’s a lot of money for the company, but is MTTR stock a good deal for investors?

MTTR stock is up 100% in the past three months, opening at $33.25 on Dec. 1. It set a 52-week high early during the Dec. 1 trading session at $37.60. Growth investors will likely see a momentum continuation. Value investors will see a whole new story. The company has a large addressable market to explore but a lofty stock price.

There are several risks that make Matterport now a risky bet on innovative technologies that will keep us busy over the next years.

What is Matterport?

Matterport allows companies to produce and store digital recreations of real locations. Here’s how the company explains why that’s valuable:

“Immersive 3D models are the most effective tool for connecting people and places to enhance collaboration and accelerate project management. Matterport makes it easy to create digital twins ideal for promoting properties for sale or rent, planning construction projects, or capturing special places.”

There’s a growing market this technology can address. The metaverse promises to move everything from working to socializing to entertaining to a digital 3D world.

CEO RJ Pittman discussed this in July:

“We digitize all kinds of buildings and spaces, from homes, to hotels, high rises, office spaces, factory floors. We’ve been matter porting for 10 years. And we have buildings digitized in over 150 countries. And millions of buildings and spaces have been matter ported. But as you said, it’s just the starting point against that massive opportunity of over four billion buildings.”

Matterport users can create a digital twin — a digital copy of a real-world place or object — and use their digital twin for business and marketing. The commercialization possibilities are limitless.

Matterport management believes that the digital twin concept is still in its infancy. This by itself presents a great market opportunity for Matterport. Pittman says that “the built world is the largest undisrupted market with less than 1% digitized.”

MTTR Stock Earnings

As exciting as the future of digitized real estate may be, investors should not be too happy with Matterport’s Q3 earnings.

Optimistic investors will look at highlights such as total revenue of $27.7 million, up 10% from a year prior; subscription revenue of $15.7 million, up 36%; and 439,000 total subscribers, up 116%. That is growth.

However, conservative investors will see a GAAP 86 cent loss per share and a non-GAAP loss per share of 6 cents and wonder whether $62.7 million in annual recurring revenue is reasonable for a public company with a market capitalization of $7.5 billion to invest in now. The surge in MTTR stock has more to do with enthusiasm than performance.

Is there potential in Matterport? Absolutely. Is there solid financial data to support the current stock price? No way. The biggest question is how Matterport will use the cash raised via the SPAC merger. Marketing and improving the 3D technology are worthwhile endeavors, but I am concerned about the company’s cash burn.

Matterport needs aggressive sales growth for the next several quarters. Until it’s profitable, the price isn’t justified. A recent partnership with Meta Platforms (NASDAQ:FB) is one catalyst for potential profits.

Matterport needs to deliver results before it’s a good investment. Keep an eye on this spatial data company, but simply ask this. If the market potential is as big as the company claims, then revenue growth and profitability will arrive soon.

On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.