December 02, 2021 - 1:05pm EST by
2021 2022
Price: 29.80 EPS 0 0
Shares Out. (in M): 320 P/E 0 0
Market Cap (in $M): 9,116 P/FCF 0 0
Net Debt (in $M): 614 EBIT 0 0
TEV (in $M): 9,000 TEV/EBIT 0 0
Borrow Cost: Available 0-15% cost

Sign up for free guest access to view investment idea with a 45 days delay.



Matterport (Short)


Matterport is a 3D imaging software provider. Matterport enables you to create 3D renderings and is particularly popular in real estate. Here is an example of a 3D tour on Redfin powered by Matterport. Roughly ⅔ of revenue comes from real estate (residential and commercial) with the remaining coming from more industrial / construction use cases. Matterport is a retail favorite and a bit of a meme stock on recent metaverse mania. The company aims to create a “digital twin” for every building, though it’s not clear how the company will monetize 3D images of office space in any future metaverse. This is a story stock with retail enthusiasm. It is also a SPAC trading for 135x ARR who just reduced their guidance and missed their quarter. Matterport has >80% downside heading into their next earnings and lock-up expiration.   


Company History


The company was founded in 2011 by David Gausebeck, a deeply technical former PayPal engineer. The company was predominantly a hardware company for most of its life. Matterport sells a ~$3k camera that takes these photos and then stitches together the 3D image. In May of 2020, Matterport released Matterport for iPhone to enable iPhone 12 users to create 3D renderings with their phone. In October 2021, they released the same functionality for Android. Download data for both of these applications are underwhelming. It also calls into question Matterport’s moat -- if I can do everything on my iPhone, how defensible is Matterport’s “AI engine” that stitches together the 3D rendering? 


Bill Brown served as CEO from 2013-2018 before giving way to RJ Pittman, the then Chief Product Officer of eBay. Pittman began focusing the company more on software rather than hardware. Checks on CEO and new management seem broadly good. The push to get the technology available on Apple and Android was meant to drive broad adoption, particularly amongst real estate agents who may not want to purchase a $3k camera or hire a specialist who owns one. 


Business Model


There are several benefits of 3D rendering and creating “Digital Twins”. The most obvious is residential real estate and the ability for potential tenants to get a better sense of the home. There are enough anecdotes to suggest that adding 3D renderings to listings makes homes sell faster and for more. However, this is simply not a large market.


In the US, there are roughly 5M homes transacted per year and ~20M rental units. If we generously assume that the average listing period for each is 4 months, and that the average rental apartment turns over every 2 years, we can assume that there are:

  • 5M * (4 months / 12 months) = 1.7M homes listable at a given time

  • 20M rental units * 50% renting in a given year * (4 months / 12 months) = 3.3M rentable, listable units at a given time

This results in a TAM of 5M residential units. 

The second biggest opportunity is commercial real estate. 3D renderings help commercial real estate owners attract tenants and potentially deal with insurers. It’s not entirely clear why every building would need a digital twin, but if you believe it does, then the TAM here is massive. 


There are other use cases -- particularly industrial and construction -- though those are essentially a different form of real estate. There’s also Airbnb / VRBO, though that seems to not be a large opportunity (more later). Regardless, the company does not clearly articulate the ROI.  Customer case studies focus on real estate leads, optimization, and other workplace training. 


Recently, including yesterday at the Wells Fargo conference, CEO RJ Pittman talked about the metaverse and NFTs. Any business with 10 different strategies has no strategies; this is a novel technology that gets the imagination going, but it’s a toy. 


The company makes revenue through 4 channels:

  • Hardware: This is their ~$3k camera that stitches together the 3D rendering. Based on ~$33M in annual revenue with minimal growth, I estimate they sell 10 - 15k cameras per year.  

  • Software (subscription): This is their monthly fee to host the 3D rendering. You pay per “active” space. 

    • For example, if you are a real estate agent, you may sell 30 homes in a given year but only 10 or so at a given time. If you scan all of these homes, and deactivate the 3D rendering once the unit is sold, you will only have ~10 active spaces at any given time

  • License: This is a very small stream of revenue for customers to host their own renderings. Very small, going to zero over time. 

  • Services: This is a Professional Services org, including photographers with cameras to map buildings. Bulls will say there is a whole Uber-esque Matterport economy and all Matterport needs to do is take a small cut. This seems unlikely, as job pairing sites like Upwork and Angi are questionable business models themselves with a much wider range of offerings.


Obviously the value lies in the software -- the hardware and services are low/no margin businesses intended to drive subscription revenue. 


In the image below, you can see that pricing ranges from free to $2 - 3 / mo. 



The company is focused on growing “Spaces Under Management” as they view adoption more important than pricing. Revenue is obviously Spaces * Cost per space per month. 


All accounts indicate that the product is either underpriced or not that valuable. $1-$3 / mo is not demanding. The company does cite a 4B building TAM as they believe every building will have an eventual “Digital Twin”. 


Even post-COVID, the company has low adoption in its core markets. You cannot filter for 3D tours on Airbnb (as you can on Redfin) so it doesn’t seem to be an especially popular concept amongst hosts. On VRBO, I estimate that 3D tour penetration is maybe 5% (looking at unfiltered results vs. filtered on “Virtual Tours”), though many listings use. Vacasa does use Matterport for nearly 90% of their 30k properties, though that is at most $700k - $800k per year of subscription revenue and likely less. 


Here is a listing using Matterport on Vacasa. Here is a 3D listing not using Matterport on VRBO. Zillow has its own 3D Capture product, though some properties do show a Matterport rendering. Either way, 3D is not heavily penetrated on Zillow. You could argue this is the expansion opportunity, or you could argue that if behavior hasn’t changed post-COVID then it may never change.


The first image below shows a search for units in the NYC area for $1M - $4M. The second search is the same but filters for “Must have a 3D tour”.