The demand for digital twins is set to increase at a good pace, with research from McKinsey indicating that 70% of C-level executives at large enterprises are looking to adopt this technology thanks to its many advantages.
A digital twin is a virtual representation of a real-world object. It can be the digital representation of a product, factory, stadiums, buildings, and even supply chain facilities.
Using digital twins allows enterprises to virtually test their infrastructure or products before they go into actual production or development. As a result, digital twins allow companies to reduce their time to market since they can identify any potential flaws way earlier, providing time to optimize or correct their product or processes before actual development starts.
The market for digital twins is set to expand rapidly in the long run. Fortune Business Insights estimates that it was worth $8.6 billion in 2022, and it's expected to jump to $11.5 billion this year, with a compound annual growth rate of 42% through 2030.
One of the ways investors can take advantage of this rapidly growing market is by investing in Nvidia (NVDA 1.56%), which has built a customer base for its digital-twin solutions. The company sees a massive addressable opportunity worth $150 billion in this space.
But the professional visualization segment, which includes revenue from digital twins, is a small part of Nvidia's business, producing just 6% of its revenue in the previous fiscal year. Also, the stock is richly valued with a price-to-sales ratio of 37, which is why investors might want a cheaper alternative to capitalize on this lucrative market.
Matterport (MTTR +0.00%) could very well turn out to be that alternative. Let's see why.
NASDAQ: MTTR
Key Data Points
Matterport is gaining momentum thanks to digital twins
Shares of Matterport surged 26% on Nov. 7, fueled by the company's third-quarter results, which were released the previous day. Revenue was up 7% year over year to $40.6 million.
It might not seem like much, but the company's subscription business is growing much faster, with subscription revenue up 20% year over year to a record $23 million. The company now gets 56% of its top line from the subscription business, up from 50% in the year-ago period.
The improving influence of the subscription business suggests that the demand for Matterport's spatial-data solutions, which create digital twins, has been growing. The company offers hardware and software along with a professional service to convert customers' physical spaces into digital twins.
Subscriptions and services are its two largest sources of revenue, accounting for almost 81% of its top line last quarter. And these businesses could continue to grow nicely and lift Matterport's overall growth rate.
The company ended the third quarter with a total subscriber base of 887,000, up 35% from the year-ago period. The number of paid subscribers increased 12% year over year to 71,000.
Matterport's overall subscriber base includes customers that use its entry-level free plan. However, the double-digit growth in paid subscribers indicates that its vast pool of free users is gradually upgrading to paid plans.
Matterport says that it had the largest sequential jump in its subscription revenue in the past two years in the third quarter, which has encouraged it to raise guidance. It now expects full-year subscription revenue of $86.7 million, up from the prior estimate of $85.5 million. And total revenue is now targeted at $158 million in 2023, up by $1 million from its earlier forecast.
More importantly, long-term growth in digital twins and the fact that Matterport has captured 11.1 million square feet digitally (which it claims is 100 times the rest of the market) should indicate it has what it takes to keep growing at a healthy pace.
The valuation makes buying the stock a no-brainer
Matterport currently trades at less than 5 times sales. This gives investors looking to profit from the proliferation of digital twins an affordable entry point. The company isn't profitable yet, but it is expected to get closer to it over the next couple of years.
MTTR EPS estimates data by YCharts; EPS = earnings per share.
As such, savvy investors would do well to start accumulating Matterport stock while it is still cheap. Its large subscriber base and the big opportunity it might have could help accelerate its growth and send shares higher in the long run.
