Better Buy: GoPro vs. Matterport

GoPro (GPRO -1.76%) and Matterport (MTTR -1.84%) both have carved niches in the commoditized camera market with their unique products and services. GoPro’s action cameras allow users to record a wide variety of activity and backs up all that content to its cloud-based platform.

Matterport’s 3D scanning cameras enable businesses to digitize “digital twins” of physical environments for online tours or virtual reality applications. Like GoPro, Matterport stores this content on its own cloud-based platform.

Image source: Getty Images.

Shares of GoPro hit an all-time high of $93.85 nearly eight years ago, but now trade at around $5 a share. Matterport’s stock closed at an all-time high of $33.05 last November, but is now trading below $4. Let’s take a look at what happened to these two innovative camera makers, and if either of the downed stocks are ready for a long-term rebound.

GoPro has learned painful lessons

When GoPro went public in 2014, its action cameras were flying off the shelves. But over the next few years, its camera sales plummeted for three reasons: cheaper competitors entered the market, smartphone cameras got better, and its top users didn’t upgrade from their old ones. cameras.

Between 2015 and 2019, GoPro’s annual revenue grew from $1.62 billion to $1.19 billion. Its annual shipments fell from 6.6 million to 4.3 million during this period, while its gross margin fell from 42% to 35%.

As GoPro’s sales dwindled, it diversified into cheaper cameras, VR camera rigs and drones. But those devices only slashed his margins without increasing his sales, so he eventually ditched those products and instead focused on his flagship Hero cameras and 360-degree Max cameras. It has also tried to attract more users by expanding its subscription service, which offers unlimited cloud storage, free camera replacements and exclusive discounts of $50 per year.

GoPro’s revenue fell 25% to $892 million in 2020 as more people stayed home during the pandemic, but its gross margin remained flat at 35%. In 2021, its revenue jumped 30% to $1.16 billion as those headwinds faded, and its gross margin rose to 41%. It also generated a net profit of $371 million, compared to a net loss of $67 million in 2020. Its subscriber count also more than doubled to 1.6 million for the full year.

This post-pandemic recovery was encouraging, but analysts expect GoPro’s revenue to rise just 2% to $1.19 billion this year, as its net income drops 78% to 82 millions of dollars. This slowdown can be attributed to the impact of inflation on discretionary buying and tougher competition. In August, it forecast it would ship only 2.9 million to 3.1 million camera units in 2022, down from 3.15 million in 2021 and its previous target of 3.2 million.

Matterport faces an existential crisis

Matterport went public by merging with a SPAC (Special Purpose Acquisition Company) last July. But like many other SPAC-backed companies, Matterport has overpromised and underdelivered.

In its pre-merger presentation, Matterport predicted that its annual revenue would grow from $46 million in 2019 to $123 million in 2021 and then grow 65% to $203 million in 2022. However, its revenue only reached $112 million in 2021, and it only expects 19% to 24% growth to reach $132 million to $138 million this year, and that only after taking into account counts its recent acquisition of real estate marketing company VHT Studios. Prior to this purchase, Matterport expected revenue to grow 12% to 21% for the full year. It mainly blamed the slowdown on disruptions in the supply chain of its camera business.

However, Matterport’s subscription-based cloud platform, which generated 62% of its revenue in the first half of 2022, is also not as big as it looks. Matterport said it served 616,000 “subscribers” in its last quarter, but 554,000 of those subscribers were still using its free plan, which grants remote access to a single digital twin. It only generated revenue from the 62,000 subscribers who paid for storing additional digital models.

This high mix of free users increases Matterport’s cloud hosting fees without increasing its revenue. This pressure, along with its sluggish sales of low-margin cameras, caused its gross margin to drop 20 percentage points year-over-year to 41% in the first half of 2022. Matterport initially told investors that its margin crude could approach 60% in 2022. .

Matterport believes it can resolve the camera industry’s supply chain issues in the second half of 2022, but further macro headwinds could dampen market demand for digital twins of physical properties. Other larger competitors, including Adobe and Unity — have also expanded into the digital twin market. As a result, analysts expect the company to remain deeply unprofitable for the foreseeable future.

GoPro is clearly the best buy

GoPro is trading at just five times forward earnings and less than one times sales this year. Matterport is still trading at eight times this year’s sales. I wouldn’t rush to buy either of these stocks out of favor right now. But if I had to choose one, I would definitely buy GoPro because its growth rates are more stable, its ecosystem is stickier, and its stock is much cheaper.

Leo Sun holds positions at Adobe Inc. and Unity Software Inc. The Motley Fool holds positions and recommends Adobe Inc., Matterport, Inc. and Unity Software Inc. The Motley Fool recommends the following options: Long January 2024 $420 Calls on Adobe Inc. and short $430 calls in January 2024 on Adobe Inc. The Motley Fool has a Disclosure Policy.

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