Matterport (MTTR +0.00%) is at the forefront of an exciting and evolving technology, but it's also up against some stiff competition and burning through cash. In this segment from "The Virtual Opportunities Show," recorded on Feb. 1, Motley Fool analyst Asit Sharma does a deep dive on Matterport and its future potential.
Asit Sharma: I want to talk about a company called Matterport, MTTR. I have spoken about it on this show before. It's one I'm interested in because in some ways it's an ideal play for the metaverse. It is a company in the business of creating digital twins through its own equipment, but also equipment that you or I might have. We'll get to that in a second. But I've got some concerns about it's not a slam dunk yet and I will get to the reason why. Nvidia might have something to do with that along with some other key players in this industry like Autodesk.
But this is a pioneer of the concept of creating a virtual twin or digital twin of a physical environment so a one-to-one replica, virtually of what we see when we look through our own eyes at an image. They started out with maybe a product edge. You see these fancy cameras that they sell. But really they've moved more into a software stance so they are like a software-as-a-service type company. You see there is a premium model here. They measure themselves in active spaces so if I make a replica of my living room, that's a space. You can already see their aim toward the enterprise. They're aimed primarily at the real estate and retail market. They also work with aviation, that is, airports and increasingly they're trying to sell to end consumers like us.
Now, I wanted to work through their recent investor presentation to show you some of the highlights. Then I'm going to talk about why I want to take a deep look at their earnings which are projected to be around March the 10th. A company that's growing very quickly. You can see their spaces under management grew 92 percent year-over-year. They also have some value-added services here, like these capture services. Going down here, they've got really, I think, very impressive statistics in terms of how prevalent their platform has become. They've captured 10 billion square feet of space, they're in 150 countries, many more subscribers than I thought they had and 100 times bigger in spaces under management than the rest of the market, which includes some very small private companies, but it also includes companies like NVIDIA who are more recently entering into this space.
They claim that they are the pioneer in this. In terms of bringing this technology to market, I would say that's certainly so. Here's a overview of those markets that they are in. Actually, I should come back here to see if I didn't show you guys this. Bear with me just a second, OK, here we are. This gives you the original method in which they sold their Software, those are experts which they have in major metropolitan areas all across the United States, now they're in the UK. These experts will go into a physical space and they will perform this digital twin service. What's a little exciting about the company though, is that it has ported its technology over to the iPhone and Android devices, so your iPhone can now perform the same image capture. Maybe not the highest clarity as if we bought or rented the Matterport camera, but it allows them to go from being a gadgets company into something which is stronger as a business proposition, that's a software company.
Just a few more stats here which are really eye catching, they say that their total market opportunity is $240 billion at one percent penetration, that would be $2.4 billion in annualized recurring revenue. If you tack on some value added services they can provide, they think that market is actually bigger once all of these customers become long term clients, they can provide data back to these clients and other services. Hard to visualize this potential until you think of some of the use cases they presented, for example, if you are a builder, you would use Matterport Software to capture your building as its being built. Instead of relying in the future on a blueprint or even the computer rendering, AutoCAD rendering of a blueprint. You would have the one-to-one dimensional representation of your building as it went up, so every pipe, every electric line, every measurement down to the line in the corner to be able to remodel your building or to work on your building if it needs repair, so that's a pretty persuasive use case. Once you start listening to management's description of where the services can go, you can sort of see that, if competition wasn't a factor, maybe that pathway to 12 billion is there.
Let's look at a few clients here you see that got some really big heavyweights including Cushman & Wakefield as customers. Here they're just talking about the multiple ways in which they can grow, including a third party marketplace, which we've seen over and over again with SaaS style companies, just think of Salesforce.com or ServiceNow or Intuit that create these third party marketplaces around their platforms. Here's where the use case starts to really take off, the customers now are expanding their usage, this is so dollar net expansion of 129 percent, so that's year over year growth in annual net dollar retention, or expansion however you want to call it meaning thereby that irrespective of churn, that is, if you just look at the dollar spend of all customers, on average, they're spending 29 percent more than they were this time last year and this time last year they had grown that spend by 112 percent, so spending 12 percent more than the fourth quarter of 2019.
Now why I want to look at these earnings? Here's what I don't like about the company despite that growth and despite a subscription services growing 36 percent year over year, they're still very tiny, they are losing money because they are having some market their products and services, they are burning some cash. Let's get to the cash flow statement here you can see the nine months ended September 30th of 2021, they have a use of operating cash of $21 million and they've got net property and equipment purchases plus their capitalized Software, which I'm going to count in that whole bucket now. Let's just round that to about six million for easy math, about 26 million negative free cash flow. Now with growth companies, if we see a long ramp to revenue, we discount the early cash burn.
The reason that I want to look at earnings a little more closely though, the company has had a lot of excitement around it and was trading at these amazing multiples of 30 and 40 times sales, even though it's so small and is burning some cash and it's not profitable yet. This is something that I think in this day and age, in an interest rate environment that is getting a little more aggressive with inflation on the rise, we have to be just that much more careful even with the stories that we liked, such as this. I think Matterport needs to show a little bit more operating leverage for me, I want to see that subscription service component of their business that's turning them into a Software company, really rise at that strong rate next quarter, I want some assurance that the company is going to be able to grow into this multiple.
Now, with the market taking such a beating, that price to sales ratio, if you will, let's just call it its market capitalization compared to that next 12 months revenue, that multiple's come down, it's a little more reasonable. Now if I translate to price to sales will be more 22, which is still really pricey. This is one of those cases where I'm really liked the technology. I like the management, although the founders have left the team that's running it now, their team is very capable, I think they can execute on this vision, it's a question of valuation and also, when you've got in the picture big giants like NVIDIA and Autodesk and Unity Software that offer similar, if not the same products, maybe it's that much harder to grow into the valuation.
I haven't left this one alone yet, I'm still intrigued by it, but I need to see more from earnings, so it's why as excited when Demitri said let's instead of just talking about our stocks that we've got this week, let's talk about our radar stocks for this earnings season that at the top of my list, guys, I'm really curious about this company's earnings.
