With Uncertainty In the Real Estate Industry, Is Matterport Stock a Buy?

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Written By Nathan Goldstein

Matterport (NASDAQ: MTTR) continues to witness growth in its business operations despite facing challenges in the core real estate market, which points to a wider acceptance of its subscription offerings. 

The roll-out of Property Intelligence is anticipated to further propel the company’s growth in the upcoming years. Nevertheless, Matterport’s financial losses are substantial, with limited progress made toward achieving profitability in recent times. 

Cautionary Flags

These losses are primarily due to non-cash expenses, but the consequence has been significant dilution for investors.

Credit: DepositPhotos

The combination of decreased demand in the real estate sector and Matterport’s high operational costs presents a risk to the investment, despite an appealing valuation at first glance. 

The outlook remains uncertain until there is a stabilization in the housing market, the timeline and nature of which are currently indeterminate.

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Market Dynamics

Matterport derives approximately half of its subscription revenue from the residential real estate sector. This has been a challenging area due to a nearly 19% year-on-year decrease in US home sales in the fourth quarter, largely attributed to a significant increase in interest rates. 

However, Matterport has still managed to enhance its subscription revenue from residential real estate by 14% year-on-year. This challenging environment might be encouraging real estate agents to seek new listings aggressively and to highlight their value to clients, with digital twins becoming an increasingly essential tool for marketing and speeding up transactions.

Several major real estate firms are adopting these digital capabilities, which is likely to sustain demand. For example, Redfin (RDFN) aims to enhance buyer experiences, including the use of 3D scans for all properties listed by its agents. Zillow (Z) has expanded its offerings to include 3D home tours and recently acquired ARIA to bolster its listing showcase product. 

Opendoor (OPEN) is another example, utilizing extensive data for home pricing, with potential future use of 3D scans for additional data insights.

Beyond Residential Real Estate

Matterport is seeing rapid expansion in other sectors as well, with digital twins becoming increasingly relevant across industries. The travel and hospitality sector, for example, is poised for significant adoption of digital twins.

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Matterport’s Strategic Developments

Matterport continues to grow by mapping more spaces, now managing 38 billion square feet and over 11.7 million digital twins. This growth is driving subscription revenue, though the company is still in the early stages of fully monetizing its data. 

The recent launch of Property Intelligence and the introduction of generative AI functionalities mark significant steps forward in enhancing the utility and value of Matterport’s digital twins.

Matterport’s ventures into the construction industry and partnerships with companies like Vacasa and Visiting Media underscore the company’s expansive scale and its potential to further influence its business landscape.

Financial Performance

Despite a slight year-on-year decline in revenue in the fourth quarter of 2023, Matterport’s subscription revenue has grown, now constituting a larger share of total revenue and contributing to both margin improvement and revenue stability. 

The company’s guidance for the first quarter of 2024 and the full year anticipates continued growth, particularly in subscription revenue.

Looking Ahead

Matterport’s transition from a hardware-focused company to one that emphasizes software and subscriptions has not yet been fully reflected in its market valuation. The path to revenue growth acceleration and profitability is critical for future valuation expansion. 

Credit: DepositPhotos

While Matterport’s success is somewhat dependent on the recovery of the housing market, the company’s broadening customer base and innovative offerings position it as a potentially valuable investment in the evolving digital landscape. 

However, the journey towards profitability and reduced investor dilution remains a critical challenge to be navigated.

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