Why The Exploding Market For Digital Real Estate Makes This Stock A Buy

Why The Exploding Market For Digital Real Estate Makes This Stock A Buy

over 2 years ago3 mins

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Tell us about yourself, Alistair

I work in advertising technology and have a passion for all things tech, clean energy, cyber security, and artificial intelligence. 

What’s the pitch?

A long-term, large cap growth investment in Matterport (Ticker: MTTR).

In the first quarter, Matterport reported $26.9 million in sales, up 108% year over year, and it hit annual recurring revenue (ARR) of $55.2 million for its subscription business. It is not yet profitable on a GAAP basis, but gross margin was 62%, indicating the business has the potential to become quite profitable once it scales. Matterport was in 4.9 million spaces at the end of the first quarter, growing 88% from the previous year.

Matterport management identifies a lot of growth opportunities, but the main one is to expand its presence globally. There are an estimated four billion buildings and 20 billion spaces (an internal Matterport metric, it is unclear how they define it) worldwide, leaving a huge market for Matterport to grow its digital twin solution.

Customers of Matterport include Redfin, Compass, AT&T, and Verizon. 

What does Matterport do?

Matterport was founded in 2011 and joined the stock market this year after a deal with a special purpose acquisition company (SPAC). The company's goal is to allow users to create a digital twin of any physical space, be it a commercial building, factory, or residential home. A digital twin is a virtual representation of an object or space that can be updated in real-time. This service lets people or companies virtually monitor and show their assets without having to physically travel to them, saving time and money in the process. Users scan a 3D space with cameras (Matterport also offers special equipment for high-quality scans), and Matterport's technology processes the data and creates a 3D representation of it.

What’s your investment thesis?

  • Massive, unpenetrated $240 billion-plus addressable market and unrivaled software and data platform with significant expansion opportunities (The $230 trillion global building stock today remains largely offline, with less than 0.1% digital penetration and over 20 billion spaces globally). Matterport delivers value across the property lifecycle for diverse end markets.
  • Clear market leader for 5+ years. Subscription-based revenue model and strong leadership team (Prior executive experience at Apple, Ebay, Google, and Salesforce).
  • 18x growth over the past 2 years, from 14,000 to 250,000 subscribers. Matterport was in 4.9 million spaces at the end of the first quarter, growing 88% from the previous year. In the first quarter, Matterport reported $26.9 million in sales, up 108% year over year, and it hit ARR of $55.2 million for its subscription business (112% net revenue retention).

What are the key events you’re watching?

  • The company expanding its presence globally.
  • Narrowing losses on an Ebitda basis.
  • It is aggressively trying to grow its consumer business. An Android app was launched this March, which now gives the majority of smartphone users around the world access to Matterport's technology.

What’s the upside potential if your thesis is correct?

The company can establish itself as the global leader in physical-to-digital property transformation positioning themselves to become the digital platform for the built world.

What are the big risk factors you’ve identified and how do you plan to mitigate them?

Matterport is expecting to generate $123 million in revenue this year, which puts its forward price-to-sales ratio at about 27. This is very expensive compared to other stocks in the market. Matterport currently faces competition from a number of companies and expects to face significant competition in the future as the market for spatial data develops. Its future growth and success is dependent upon the continuing rapid adoption of spatial data.

This insight was submitted by a community member for information and educational purposes. It doesn't represent the views of the Finimize team and shouldn't be taken as financial advice.

What do you think, Finimizer? Vote buy/sell/hold here.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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