Matterport Shows Why the Metaverse Will Have Some Growing Pains
Billions of dollars are already being committed to build the metaverse which makes Matterport a solid long-term speculative stock. But the future is not here yet, so investors should be...
The architect of digital structures continues to face obstacles in the real world but may still be a long-term play
Billions of dollars are already being committed to building the metaverse. And, by the amount of hype being generated, that's likely to be only a down payment. That's creating interest in metaverse stocks. This brings us to Matterport (NASDAQ:MTTR).
The company is expected to report revenue of $25.13 million dollars and negative earnings per share of 9 cents. That would seem to be unlikely to help MTTR stock which has been in a steep decline since being caught up in the tech selloff in December 2021.
The business case for buying Matterport as a metaverse play is simple enough. Digital avatars will need places to go in the metaverse. And Matterport is using its 3D spatial data technology to create "digital twins" of real-life structures. imagine going into a virtual representation of your office to meet in a virtual conference room with avatars of your colleagues.
There is a challenge to this, and I'll get to that in a moment. But consider that Matterport already has a partnership with Meta Platforms (NASDAQ:FB) which is committing $10 billion into the metaverse.
However, Matterport generates approximately two-thirds of its revenue in the real world. As an example, you can look at the company's existing partnership with Redfin (NASDAQ:RDFN). The real-estate company uses the company's technology to model properties. And the thinking goes that as time goes on, the technology will improve to the point where prospective buyers will have an experience that closely resembles the real thing.
Another part of the bullish story is that Matterport is transitioning to a subscription service. And in the last quarter, the company increased its subscription revenue by 36%.
There Are Obstacles to Adoption
Matterport estimates it is in the early stages of capturing a $240 million market. However, it looks like realizing that the market's full potential may be some time away. The company has already lowered its revenue estimates once. And if analysts are correct, the $25.13 million of revenue the company posts in the fourth quarter will be the second consecutive quarter that the company has delivered declining revenue.
And although some investors may embrace the slogan that fortune favors the bold, businesses tend to take a more measured approach. That means shoring things up in the real world before making a move to shift the paradigm.
As a case in point, a recent Wall Street Journal article reported that remote workers are reluctant to go back to the office, not due to public health concerns, but because they are enjoying their freedom. And offices are reluctant to push back too hard for fear of losing top talent. However, the realities of vacant office buildings and their effect on local businesses are causing local governments to begin to push back.
My point is that neither of these situations is optimal for Matterport. In the first example, if remote work becomes the norm, or if employees return to the office, why would businesses make the investment in digital twins of their office buildings?
And one reason that Matterport's 3D modeling for realtors took off was the pandemic. Aside from public health concerns, many people have moved during the pandemic. This has created a housing supply shortage. With homes selling so quickly, a virtual tour was basically a necessity. When the real estate market begins to normalize, it's not a huge leap to presume individuals will want to look at homes for themselves.
Be Realistic About MTTR Stock
As I wrote earlier, billions of dollars are being thrown at the metaverse. And it's not just Meta Platforms. Microsoft (NASDAQ:MSFT) is looking to enter this space in a big way. With that much money coming in, Matterport is likely to become a beneficiary.
However, if you're investing in the stock, it's time to be patient. The metaverse is a long-term play and the market is full of investors with a short-term mindset. MTTR stock is not one to take a large position in, nor should you invest money you can't afford to lose. But if you have a long time horizon and a healthy appetite for risk, a small position at the stock's current price could pay off handsomely over time.
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