Facing imposing short-term and long-term hurdles, the overall outlook of Matterport (NASDAQ:MTTR) stock is quite problematic at this point.
In the short term, MTTR stock is likely to be hurt by the overall downturn of tech stocks in general and of unprofitable tech names with high valuations in particular. And over the long term, the company will have to combat intense competition and the likely limits of the metaverse.
These issues combined just make MTTR stock too hot for most investors right now but let’s dig into some of the details.
Matterport’s Short-Term Issues
Anyone who follows the stock market, even to a limited extent, knows that tech stocks with high valuations have really been battered in recent weeks, as investors worry about the impact of looming interest rate hikes. And even harder hit have been the stocks of unprofitable tech companies with high valuations.
Unfortunately for Matterport and the owners of its shares, its stock is definitely in the latter category. In 2022, analysts, on average, expect the company to lose 21 cents per share. And on the valuation front, MTTR stock is changing hands for around 17.5 times analysts’ average 2022 revenue estimate.
For an unprofitable company whose revenue, as another InvestorPlace contributor, Muslim Faroque, pointed out, only increased 10% year-over-year in the third quarter, that’s a huge valuation.
Given Matterport’s high valuation and lack of profitability, it’s hardly surprising that MTTR stock has struggled mightily in recent weeks. In fact, over the past month, shares have tumbled just over 55%.
The Fed’s Influence
It’s possible that the Federal Reserve could stop the relentless tech stock downturn by finding a way to reassure investors following its Jan. 25 – 26 meeting. Clarifying that inflation is not out of control and signaling that the central bank only expects three rate hikes this year, for example, might do the trick.
On the other hand, if the Fed chooses to be more mysterious and vague, the slump could easily continue for a few more weeks or even until the bank’s next scheduled meeting in March. But in any event, buying MTTR stock before the Fed concludes its upcoming January meeting is not prudent.
Tough Competition for MTTR Stock
As I explained in a recent column on another Metaverse player, Roblox (NYSE:RBLX), the sector is becoming quite competitive. According to USA Today, 160+ firms are already involved in the metaverse. It’s a good bet that dozens of these companies will become direct competitors to Matterport by helping businesses utilize the metaverse to make sales.
Indeed, two major tech heavyweights — Microsoft (NASDAQ:MSFT) and Meta (NASDAQ:FB) — could easily use their considerable resources and existing connections to hundreds of thousands of businesses to take market share from Matterport. Actually, given Matterport’s relatively low sales growth in the third quarter, that may already be happening.
The Metaverse’s Uncertain Future
Additionally, as I noted in a Dec. 31 column on FB stock, “the metaverse has been around for a very long time, without generating much revenue.” The concept of the metaverse was invented in 1992, and I remember reading about metaverse companies shortly after the turn of the millenium.
Also important to note is that Meta’s CEO, Mark Zuckerberg, started the recent fascination with metaverse. But I reported in my previous column that Zuckerberg doesn’t expect the metaverse to become profitable for Meta anytime soon. I also pointed out that, when it comes to e-commerce, the CEO’s longtime ambitions for his company have not materialized either.
Also worth noting is that often, and even perhaps usually, stock rallies based on speculation about “the next big thing” don’t last very long. For example, solar stocks jumped around 2010 before subsequently crashing (although they did make a comeback many years later), and 3D printing stocks soared around 2013 before tumbling and never recovering. Most famously, a majority of the dot-com names that roared in 1999 and 2000 subsequently disappeared.
My two cents is that the metaverse may never become huge, especially for consumer-facing businesses. Most people who are buying a house, a car, high-price clothes, or other very expensive items will want to actually see and touch them in person. As for cheaper merchandise, a majority of consumers probably will not want to take the time to strap on a virtual reality helmet, grab a joystick, and plug in the necessary codes to evaluate the items in the metaverse.
The Bottom Line on MTTR Stock
Matterport’s short-term outlook is negative and its long-term outlook is, at best, quite uncertain.
Meanwhile, the stock’s valuation is far from attractive. In light of these points, I advise all investors to sell their shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, Ford, Exxon, and Snap. You can reach him on StockTwits at @larryramer.