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Did Apple Just Put a Nail in Matterport’s Coffin?

It can be tough for technology start-ups that have a limited ability to defend their niches from the incursions of rivals. We live in a world where massive tech powerhouses have hundreds of billions of dollars in resources at their disposal. A tiny business can spend years gradually developing a useful new service and building the market for it, only to suddenly find itself competing with a tech titan.

Take Matterport (NASDAQ: MTTR), for example.

The company’s cameras and software help clients map out and create virtual representations of real-world spaces, and its spatial data platform has been winning over lots of fans. But high-growth tech companies — especially ones that aren’t generating profits — have fallen out of favor among many investors in the current macroeconomic environment, and Matterport’s share prices are down 75% so far in 2022.

The stock took another tumble after Apple (NASDAQ: AAPL) debuted a rudimentary tool that could compete with Matterport’s at its Worldwide Developers Conference (WWDC) 2022 earlier this week. Could this signal that the end is near for Matterport?  

A new competitor with a massive user base

Matterport helps its clients create “digital twins” of real-world physical spaces — homes, office buildings, malls, construction sites, and so on. Companies like Nvidia have touted their benefits as planning tools. Before making a change to a site in the physical world, owners can test it out in a virtual one. Matterport’s platform greatly accelerates the speed at which these digital twins can be created.  

In the first quarter, Matterport grew its revenue by just 6% year over year to $28.5 million, but its total subscriber base soared by 70% to 562,000, and “spaces under management” (virtual rooms, buildings, and locations managed in Matterport’s software suite) increased by 49% to 7.3 million. The company is losing money right now, but it had $402 million in cash and short-term investments and another $198 million in long-term investments on its books as of the end of March. This little business has a lot of promise, and it could be a beneficiary as organizations attempt to translate their real-world properties into digital locations in the metaverse.  

Enter Apple with its own competing offering. At its big developers’ event, it showed off RoomPlan — a new feature for the iPhone that uses its ARKit (or “augmented reality kit,” for developers that want to integrate camera and motion features into their apps). RoomPlan is rudimentary compared to Matterport’s platform, but it makes use of an iPhone’s camera and LiDAR to map spaces in 3D.

I’ll emphasize the word “rudimentary” here. Matterport’s offering is best-in-class, and a simple room scan with an iPhone isn’t going to top it. But RoomPlan is an API — an application programming interface. In other words, it’s a simple feature designed to be added to apps, and is meant to be improved upon by software developers. The fact that there are hundreds of millions of iPhones in use worldwide only adds to the lucrative appeal of building new digital twin services in the Apple ecosystem. In short, Apple just opened the door for lots of potential competition for Matterport.

Matterport’s business isn’t out, but be leery of the stock

To be fair, Apple’s foray into digital twin creation could simply have the effect of accelerating the adoption of the technology. If RoomPlan gives consumers and businesses a taste of how powerful and useful virtual re-creations of real-world spaces can be, they might go searching for an even more powerful tool — and land at leading player Matterport. 

But for now, Apple’s simple flip-of-the-switch to unlock new uses for the massive base of iPhone owners illustrates the challenge small tech companies like Matterport face. As good a service and hardware platform as it may be, maintaining an early lead can be an uphill battle when tech behemoths can dedicate what, for them, are minimal resources to offer an alternative.

And with Matterport trading at over 11 times trailing 12-month sales and far from turning a profit, I’d be leery about owning the stock at this juncture.

Nicholas Rossolillo and his clients have positions in Apple and Nvidia. The Motley Fool has positions in and recommends Apple, Matterport, Inc., and Nvidia. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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