Will Matterport stock’s fortunes be transformed after massive Microsoft deal?

Matterport [MTTR] stock may have received just the boost it needed with the news of Microsoft’s mega-money takeover of Activision Blizzard [ATVI].

Microsoft grabbed global headlines last week after agreeing to stump up nearly $70bn in an all-cash deal to acquire the publisher of franchises such as Call of Duty and Candy Crush. The biggest deal in tech history will “provide the building blocks for the metaverse”, according to the tech giant.

The metaverse is a blend of physical and digital worlds that users can navigate with their own avatar. And although it’s still at concept stage, Mark Zuckerberg has seen enough, changing Facebook’s corporate name to Meta Platforms [FB] and announcing it will spend $10bn a year on the metaverse.

Within this new digital universe, Matterport allows users to create 3D models, or ‘digital twins’, of physical spaces. But after weeks of decline, how can Matterport stock reverse its recent fortunes and take control of the promise offered by the metaverse?

What’s happening with Matterport stock?

After it started trading on 23 July last year following a SPAC merger with Gores Holdings VI, Matterport stock climbed 164.23% from its $14.23 open to a 52-week intraday high at $37.60 on 1 December. The rest of the month disappointed investors though, as the share price gradually fell, before a sharp slump since the start of 2022: Matterport stock has plummeted 49.95% year-to-date, and 22.56% last week alone, eventually closing last Friday at $10.33, marginally higher than its all-time low of $10.00 the same day.

Unique Matterport product could mean long-term gains

Despite recent declines, many predict a bright future for Matterport stock, and Motley Fool’s Asit Sharma sees potential in Matterport’s competitive edge, saying “one characteristic that I would love  … would be that unique product experience or edge that is virtual. I think Matterport is really a paragon of that”. The company has created a niche by targeting the consumer market – anyone with an Android phone or iOS device can download the app and make a digital replica of their own home. “It's not really a space that the big giants want to play in right now … it looks very promising as a gross profit proposition,” he added.

Despite the current choppy waters around Matterport stock, Motley Fool’s Jamie Louko agrees, and is cautiously optimistic. He declares that “out of all the companies that could help grow the metaverse, Matterport stands out … I would look into this metaverse play if I could only choose one.” He sees Matterport investment as a long game though, following a third-quarter net loss of more than 600% of its Q3 revenue, meaning profitability could be years away. Louko suggests “adding Matterport to a diversified portfolio could be a smart move … over the next decade or more”.

“Out of all the companies that could help grow the metaverse, Matterport stands out … I would look into this metaverse play if I could only choose one” - Motley Fool's Jamie Louko

Are revenue numbers a red flag?

Amid this fanfare, Seeking Alpha’s Michael Wiggins De Oliveira urges investors to take a reality check on this immersive reality opportunity. He recommends avoiding the dip: “investors today paying 22x this year's revenues for Matterport are going to be disappointed,” he said.

He remains sceptical on Matterport’s revenue growth rates; the company forecasts an impressive 59% compound annual growth rate from 2019 through to 2025, but Q3 2021 growth rates were only up 10% year-on-year. “Not only is this company not growing anywhere near fast enough to support this valuation, but more importantly, I question whether the company itself has a strong enough grip over its near-term prospects”, he added.

Ultimately, it’s Matterport’s profits that concern Wiggins De Oliveira, who said, “previously, investors were more than willing to look beyond Matterport's bottom-line profitability. But now that the share price has started to sell off, investors are going to start to reconsider whether it still makes sense to pay a premium valuation for a business with negative 50% non-GAAP net margins”.

What do analysts predict for Matterport stock?

Despite Wiggins De Oliveira’s concerns, Wedbush analyst Daniel Ives sees Matterport as a “core metaverse play”, and estimates there is a $240bn global total addressable market (TAM). At 15bn square feet right now, Matterport’s spatial data library equates to a penetration rate of less than 1% of this TAM. “We continue to believe Matterport is in the early innings of a massive growth story playing out over the coming years,” he told Yahoo Finance.

Ives gives Matterport stock an Outperform rating, while analysts following the stock with the Wall Street Journal have awarded a clean sweep of five out of five Buy ratings, and an average price target of $29.60. This equates to a significant potential upside of 186.54% based on Friday 21 January’s close at $10.33.

While the Matterport stock price has struggled recently and has its detractors, it also has the backing of analysts. Although big returns may take some years, its niche proposition and enormous potential make this one metaverse stock to watch.