Matterport ( MTTR -6.74% ) The stock plunged 17.4% on Thursday, February 17, after the spatial data company released its fourth quarter and full year 2021 results the previous afternoon.
Investor dissatisfaction was largely driven by first-quarter and full-year 2022 forecasts that were significantly below Wall Street’s consensus estimate for revenue and earnings. The fourth quarter net result, slightly weaker than expected by analysts, also probably weighed on the stock.
In the fourth quarter, Matterport’s revenue rose 15% year-over-year to $27.1 million, which was in line with Street expectations. Growth was driven by a 32% increase in subscription revenue to $16.5 million. Adjusted net loss was $0.10 per share, ten times higher than a year ago. This loss is due to the intensification of the company’s operations after its IPO last July via a special purpose acquisition company (SPAC). Management’s actions to mitigate the revenue impact of global supply chain bottlenecks also contributed to the loss.
Earnings releases only tell part of the story. Here are three key things management shared on the fourth quarter earnings call that you need to know.
Gain large companies as customers
From CEO RJ Pittman’s remarks:
I’m thrilled to report that we now have 20% of Fortune 1000 customers, many of whom were able to immediately prove the business value of Matterport by simply using the phone in their pocket and our free freemium tier to get started.
The Fortune 1000 is a list of America’s 1,000 largest companies (public and private) ranked by revenue, as compiled annually by Fortune magazine. Matterport has considerable leeway to grow its sales to these customers. And there’s huge potential in the business space beyond those existing customers.
Beyond the breadth of the revenue opportunity with enterprise clients, there’s another big bright spot with this business class: very low churn. Corporate churn is “almost non-existent,” Chief Financial Officer JD Fay said on the call.
“Exceptionally strong” performance in capture services
From CFO Fay’s remarks:
Services revenue for the fourth quarter was $3.7 million, a 69% year-over-year increase. … Year-over-year growth was led by exceptionally strong performance in our capture services segment. In the fourth quarter, we began to see enterprise customers who had agreed to use capture services earlier in the year begin to plan and analyze their physical footprint in larger volumes.
In capture services, enterprise customers use Matterport to outsource the capture of their physical spaces in high volume. Thus, this service allows corporate customers to access Matterport’s platform faster and at greater scale than using other means of digitizing their spaces in 3D, such as purchasing Matterport’s cameras and performing the work themselves.
Many enterprise customers who “had agreed to use capture services earlier in - in the words of Fay – has postponed planning for the service due to the pandemic. The fact that Matterport is seeing an increase in the number of these customers starting to plan for this service is obviously a positive.
Supply Chain Bottleneck Mitigation Measures Hurt Gross Margin
From CFO Fay’s remarks:
[O]your non-GAAP total [adjusted] gross margin for the fourth quarter was 50%. Our subscription gross margin was 78%, compared to 75% a year ago. … The gross margin for the product was negative 11%, compared to a positive margin of 39% a year ago.
The product adjusted gross margin down to minus 11% from over 39% is a huge drop. For context, fourth quarter product revenue fell 22% year-over-year to $6.6 million, representing 24% of the company’s total quarterly revenue. This decline was due to the company’s inability to fully meet customer demand due to global supply chain issues.
The product’s adjusted gross margin plunged for two main reasons. First, toward the end of the third quarter, the company began paying for expedited shipping of “shortage materials to meet customer demand,” Fay said. Second, management “made tactical decisions to source parts from alternate vendors or pay higher prices to secure allowances,” he added.
Matterport’s decision to reduce the costs associated with its products was a smart long-term decision. Serving customers in a timely manner is important to keeping them happy. Additionally, as Fay explained, “in most cases, shipping a Pro2 camera results in a new paid subscription to our platform. In this situation, we expect to recoup the gross profit investment current product within the first four months of the customer’s subscription term with us, on average.”
A title to watch
Matterport is worth putting on your watch list because it has the potential to be a player in the metaverse. Its stock sold off significantly as investors were unhappy with its growth momentum. Revenue growth has been hampered due to the global supply chain mess, not due to a lack of strong demand for its products and services. Supply chain issues also hurt its results. Eventually, things will improve on the supply chain front.
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