Chit Chat Stocks - Matterport (GHVI) | Not So Deep Dive

Episode Date: July 18, 2021

Matterport will trade under the ticker symbol MTTR post merger. The company turns physical spaces into 3D spaces. Matterport has endless opportunities with some of the most obvious uses being in real estate and construction. Listen closely as Brad, Brett, and Ryan go through the history, financials, and future prospects of Matterport. Enjoy the show! Our Sunday Deep Dives are sponsored by Potential Multibaggers. Multis are looking for stocks that have the potential to go up 10x in 10 years. Check-out the service here: https://seekingalpha.com/checkout?service_id=mp_1308 Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested in more of Brad’s work? Follow him on Twitter: https://twitter.com/StockMarketNerd?s=20 Rather watch us on video? Subscribe to our YouTube channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ Contact us: [e-mail] Timestamps Company Background | (2:42) Industry | (8:17) Management & Ownership | (11:22) Valuation | (13:30) Earnings | (14:50) Balance Sheet | (19:10) Our Analysis | (22:51) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Welcome in. This is the Sunday Deep Dive episode. We got Brad Freeman on the show, as always. We have Ryan Henderson, too, as always, one of the co-hosts here on Chitchat Money.

And we're going to be talking Matterport. It is a new stock, excuse me, SPAC, that's going to merge with Gores Holding VI, which is a fun name. And I'm not really sure what they're going for there, but we're going to see this hit the public market soon. Brad, how are we doing today? Ready to talk Matterport? Doing well. And you guys know I always love to discuss SPAC land, so this should be exciting. That's right. That's right. SPAC land, it's kind of like going into a whole new area of the market. You're like opening up a door. Things are crazy. Some stuff has no revenue and trading at $10 billion valuation, but Matterport at least has a real business and I'll let Ryan introduce it. But first, do you want to talk about our flagship sponsor for the Sunday episodes,

Potential Multibaggers? Yep. It is a Seeking Alpha service ran by our friend, Chris. And the goal or the aim of Potential Multibaggers is to find stocks that can 10X over the next 10 years, which equates to about 26% per year. He's had a pretty stellar track record. I've got some of the numbers here. He picked Shopify at $77. Do you want to pull up that stock price right now? I think it's at like 1400. So good, solid. Not bad at all. Sea Limited at $54. Okta at $64. The list goes on. He's had just kind of an impeccable track record and it's just a really sweet community. It's grown a lot in size, but he tries to stay connected with everyone. He can answer questions. He's really approachable, accessible.

Uh, so it's well worth it. Go check it out. Uh, I'm sure we'll have the link in the show notes or just look up potential multi-baggers on Google. I'm sure it'll come up. Yep. And what's his Twitter? Uh, Twitter handle is Chris at Chris from value. Am I getting that right? Yep. Okay. Or is it at from that? Yeah, it should be right there in the copy from value from value. Yeah.

That's right. Okay. But I'll talk about Matterport, uh, pretty, pretty fascinating company. It's one that I think a lot of us have come across without knowing it. so Matterport's essentially turning physical structures into data and that I guess implies the name Matterport they're porting matter I didn't really realize that until I started to think about it but the way the technology works is someone and this could be kind of anyone so it could be like a real estate photographer hired by a real estate agent or it could be an enterprise company employee it could be even just like a normal homeowner it goes through a

building or physical space and takes pictures of it. And these pictures can be taken on several different devices. So it could be the Matterport Pro 2, which is their proprietary camera that they sell. And I think that leads to like the highest quality, or it could be a number of other 360 cameras, or it could even be an iPhone. And then once the user submits these inputs from their capture device, Matterport's software engine, which they called Cortex, uses visualization algorithms to build a 3D model. And they call this part a digital twin. And so that's where you can go through and basically have this 3D tour on a computer or on a device. And it's just really convenient. And there's a lot of different applications, which I want to talk about some of

the customer use cases, but it's hard to pin any down because they vary so widely. So one example would be, and this is probably one of the most common ones, would be a real estate agent who's trying to sell a bunch of houses. So they go in, pick up the pictures, input it, use Cortex. Now they've got these digital twins that they can give potential buyers digital tours to. Another possible example could be a warehouse who has to meet certain safety qualifications. So if an inspector can go in, look at it, and they can do it right, they can do it remotely just by looking a digital twin or even like an enterprise. So let's say some enterprise company or corporation wants to configure an internet setup. They can just talk to an internet provider or whoever's

going to come in for installation and send them this digital twin and they can kind of map it out on their own. I mean, the applications are seriously endless. They really talk about trying to go after the enterprise. That's what they really mentioned in their S4, but the pricing ranges. So basically you can create an account and upload one space for free if you're using an iPhone. And that's what a majority of their users or subscribers, I'm putting subscribers in air quotes there. That's what a majority of them do. But if you want multiple spaces or more of a professional grade digital twin, you have to pay a certain monthly or yearly rate. I think most of the subscriptions are month to month,

but basically it's all user generated content that gets uploaded because they're going through their own physical structures and taking video of it. And then it's getting ported over into data essentially, which creates this big, what they call a spatial library. They love talking about the spatial library. Yes. And, but ideally some of the way I understand it is they have, and the CEO talked about this, it's reinforcing algorithms. So they use a lot of reinforcing with their, they're trying to kind of fine tune these algorithms to make assumptions about how the building is. Well, so you're trying to tag characteristics and features of an item, because if you're doing that on your own, say you're looking at a room in a house, there's tons and tons of things. And if you're doing all that manually, which is what most of the time is now, and then for some of those competing products, what it is like that too, you might have to tag 100 things, it could take an hour. But if Matterport is able to do that automatically, and they're pitching that as the kind of endgame here, that could be a great value proposition to the users.

Right. And then ideally, as the spatial library gets bigger, that makes these algorithms more fine-tuned because they have more use cases to look at, right? Go ahead, Brad. Flywheel. Flywheel. Yes, exactly. Data advantage. I'm going to say it later in my low life. Data advantage scares me sometimes, but that is what they are pitching. So we're going to try to evaluate, see if there's any merit to that. Okay, and then I'll get into the history a bit. So Matterport was apparently spawned out of the Xbox Kinect hacker scene in 2010.

Xbox Kinect, shout out. Which I guess you can start to see the parallels there. And it was officially founded in 2011 by Matt Bell. So apparently Bell was working for a gesture recognition company, I think in association with the Kinect or whatever, because you're basically taking physical actions and turning them into a command, essentially a data command. And basically, this inspired him to team up with a guy named David Gausabek, might be butchering that, who was responsible for devising the first capture security system at PayPal. And the two of them, when they joined together, they went through Y Combinator, and they got

a $1.6 million seed round in 2012. And then in 2014, apparently, that's when they really started getting heavy into commercial real estate, and they raised a $16 million Series B. One of their big investors is Lux Capital. So if you're familiar with Josh Wolf, their fund was an investor, I think, in multiple series or multiple funding rounds. There's also a good video on YouTube that you can go look up with him talking to the CEO. But then they brought in a new CEO named RJ Pittman in 2017. I'll let Brad kind of talk about that. But Brett, you want to get to the competitors first? Yeah, I'll hit industry. We can get real bullish here. All right, let's talk about their SPAC presentation stats. No limits to what you can say on a SPAC presentation. So they estimate that there is a $240 billion total addressable market if 20 billion spaces, which is how many there are estimated around the globe, go into these digital twins and spatial data, which means that they get their rooms, say, just like the room you're in right now, say that gets uploaded to, just think of it like uploaded to either the internet or uploaded to the cloud. if we want to simplify it. Right now, for reference, Matterport has about 5 million, so they're not getting anywhere near market saturation if you assume that every building in the world will eventually become a digital twin. Now, should you make that assumption? I'm

not sure. We can discuss that later. But all outside research seems to indicate that digital twins will grow rapidly over the next decade. Predictions are for 20% annual growth, 30% annual growth, things like that. If we want to look at competitors, a big one is Zillow's in-house product. So Zillow is typically, or a Zillow-like company is typically a customer of Matterport.

So Redfin, Compass, those real estate agencies use Matterport, Zillow has their own one. So that's one to kind of keep an eye on, see if they can replicate that, see if Matterport, and I guess a big indicator of Matterport success is if they just get Zillow to eventually come over to them. There's iSpy360, EasyPano, Virtual Tour, VPIX, Cupix, 3DVista, Pano2VR, tough names, but there's tons of them out there.

And they all seem to be focused on real estate tours. And interestingly, Matterport is focused on a lot of things outside of real estate, even though that is one of the core use cases. They're trying to go for every single building in the world, whether it's commercial, residential, or industrial. A few things to watch out for, though, are if any of these competitors can build a viable smartphone product. Now, Zillow already has one, but it is for that specific residential real estate use case.

And then if it's partners, which could include someone like Autodesk, Unity, companies that are in adjacencies to them and that work with Matterport to plug into all their tools. If they have the software expertise to build something that can be a competitor to Matterport, and if they can't, that'll kind of be a test of Matterport's advantage or technical expertise. Yeah, that makes sense, Ryan. And I'll also add that another kind of competitive advantage is the capture devices that they can use. So I think Zillow is able to use the iPhone as a capture device. A lot of the other alternatives, you need sort of a professional grade 360 camera. So that kind of opens up the market a lot. And that's why Matterport has over 100 times the number of spaces under management as the rest of the market combined.

Yeah. And they only launched the iPhone one in 2020 or 2019. So pretty recently. And then Android just came out. So did it come out or it's under beta? Well, I guess it's out. I don't know if it's full blown yet, but yeah, that goes over industry. Brad, do you want to go through the management and the ownership of the company? Yeah. Love to. So RJ Pittman, as we talked about is the CEO, but not the founder. A pretty impressive resume. He was the chief product officer at eBay. He was the head of e-commerce platform at Apple, a former Google project manager. Compared to some of the other SPAC CEOs that I've listened to and observed, he seems a little less in your face, a little less over the top. He does give great interviews and he also

articulates the bull case and optimism effectively, but there's a healthy balance that I think is lacking from some of these leaders in this specific asset class. So he's got a 76% glass rating, but only 83 reviews. So not a ton of data there and take that with a grain of salt. He is a University of Michigan alum. So you know, he's amazing and awesome and go blue. I'm a Michigan alum in case you were wondering. But J.D. Fay is the CFO. He doesn't have the really highlight experience that R.J. Pittman has, but he did go to Harvard Business School. Silicon Valley Business Journal has named him CFO of the year. And he does have significant experience as a financial higher up at some not public companies and not companies that

I don't think our viewers would know, but he's got relevant experience. Jay Remley is the chief revenue officer. He's the former director of Google Cloud. Other highlights, there's an early architect at PayPal, a former VP of the RealReal and Salesforce, and a former VP of design at eBay. Ownership is pretty straightforward, as all SPACs are. So existing investors are rolling over 75% of the outstanding equity as GHVI merges into Matterport. GHVI shareholders specifically are going to get 12% of the offering. The pipe, which is private investor in a public enterprise is going to get 10% of the offering. That includes your juggernauts like BlackRock and Fidelity and Tiger Global as well. Sponsors get the remaining 3% of that deal.

3%, 3% fee. That's all. I mean, that's how it is with SPACs, but I always kind of just, you know, old manuals at cloud when that occurs, uh, 3% fee for one deal, but yeah, that's good. We'll get, we'll get right into valuation next. Um, so this is pretty, pre-merger spec, uh, like Brad mentioned. So we're going to have to do a little bit of math here for the market cap, but from what I read, the merger is, you know, they're saying it's imminent. So it should go over soon. Tigger is a G H V I if you want to buy it currently, but it will trade under the ticker MTTR post-merger. Current price for the SPAC is $13.95, but the merger goes through at $10 a share. So investors are buying at an estimated $3.2 billion enterprise value right

now. Cash position though is subject to change because they did that presentation back in February. So they either could have burned some money or maybe made some profits during that time. EV to sales is 25.6 based on their 2021 revenue guidance and then projecting to stay unprofitable until 2024, but they are guiding for gross margins to expand rapidly. So watching that line item, watching gross margin as a metric is, I think, something you want to do as an investor. If that creeps up over time, as they say, right now it's, I think, in the 50s or maybe in the 40s. I think it's in the 50s. They're expecting that to get up to 80% from a consolidated standpoint as subscriptions become a larger part of the business. That's a big thing to watch for

the valuation going forward if they're projecting to stay unprofitable or right around pre-key. Yeah. And there was also kind of a good bit in their S4 that they filed where they were like, we're going to use this money to invest basically through the income statement and power up and try to go after the market. And then they also said like, if this doesn't go through, we'll just peel back on spending and try to be more profitable, which was kind of interesting to think that, and that probably dictates a lot of their spending now that they know they have the funding possibly secured. And then they have funding for VCs, which we'll talk about here in a second, but they had $86 million in revenue in 2020. That's up 87% year over year.

And they break down revenue into four parts. And this part's pretty interesting. So I'll kind of go through each piece subscription revenue. So this is just people paying to utilize the technology, which is kind of what we talked about. That's sort of the common customer use case. That was 48% of revenue, but that'll likely be higher over time. I think there was sort of some one-time blips due to COVID because so many people tried to port over their physical spaces into data, which created a lot of product revenue, but license revenue, this is Matterport allowing certain customers to access their spatial data library. So they're basically just giving away access to their data. And I think this is more companies that need access to all of

it. So like an apartments.com or Redfin. Maybe, maybe, maybe. Because I don't know, it seems like that was a new revenue item. I'm not sure if those go in there. It could be, it could be. It was introduced in 2020. I thought they'd been with Redfin for longer. Yeah. I mean, I guess I'm not sure because they don't break it out. I tried to look, but I can't, I can't think of who else would need to use it. Probably just researchers, you know, AI researchers, stuff like that.

It's only 4% of revenue, but it's 98% gross margin. Very easy revenue. But I guess ideally, as they grow, the spatial data library becomes more and more valuable the more spaces they get on there. And so that's just a huge profit driver, hopefully. And then product revenue, this is mostly them just selling the various capture devices that they have. So kind of hardware. Ideally, this shrinks as a percentage of their overall revenue as they scale. And then services revenue.

So this is like if an enterprise said, all right, we want a digital twin of our building. why don't you just come in here and do it yourself? We'll pay you to do it. Professional services, they send an actual personnel. Yeah, it's very low margin. So it's not a huge part of their business, but still 9% of revenue, I think. And then 56% gross margin overall, up from 48% a year ago. They are spending a ton of money on operating expenses, as I talked about, which I guess isn't a surprise given that they have a lot of VC funding. And they would also, I also think it would be almost irresponsible not to spend money going after the market right now, considering that it's so new.

Why raise this back if you're not going to? Exactly. I mean, I imagine that's what the money's for. And then they had negative 11 and a half million. So they had an 11 and a half million operating loss for the year, negative 8 million in free cashflow. And so they're getting closer to profitability. But as you mentioned earlier, they're likely going to start investing a bunch of money back into the business again, following this merger. So they're not expecting to be free cashflow positive until 2024. They had a net dollar expansion rate of 112%. They had 4.3 million spaces under management. That's a number they talk about a lot. And if you're saying, if you're confused

on what I said earlier, they updated recently that so that the number Ryan's referencing is the end of 2020. It's gone a little over 5 million now. Interesting. And then they had 254,000 subscribers. That number's up 542% year over year. That tells you what kind of impact COVID had on them. And the iPhone launch. Yeah. That is sort of the caveat is 83% of those subscribers are free. So less growth in the paid users. And then they expect a 54% revenue cagger over the next five years. Oh, bank that, that's coming. Now that is rosy. That's a little optimistic, I imagine, but also given the market that they're in and how it's so young, I guess it's not impossible.

Yeah, that's something we're going to, we'll definitely debate that on the second half, so we think there. Brad, any thoughts on earnings or valuation? And if not, you want to hit balance sheet and liquidity. Yeah, I'll head to balance sheet and liquidity. You guys did a great job covering earnings, but pretty straightforward as all these post-SPAC merger balance sheets are. So it'll have 655 million in cash on hand post-merger, no debt, far from profitability, as Brett mentioned, not getting there from an EBITDA perspective until 2024. So there could be future raises, but as of right now, they have a pretty comfortable cushion, negative 8 million in free cashflow, 655 million in cash on hand. They've got a lot of cash.

Yeah. Go ahead. I'll say this though. There is a little bit of debt. It's close to zero, but I think it's 12 million in long-term debt, which- But it'll probably get retired, right? Maybe not. I would think so, but don't you think they would have retired it now that they have like $50 million in cash currently. And it's pretty high interest, really. Usually these SPAC mergers, it happened with Tattooed Chef and Butterfly for me. It just eliminates all the debt from the balance sheet and it just pays it off. But we'll see if that, I think it's happening. Will happen here, but we'll see.

Yeah. And that's the tough part about the balance sheet with the SPAC before, we're not getting the audited balance sheet. And that's the big worry a lot of times, because sometimes there's the, what should we call it? They have to correct things, make some adjustments of what they were doing in the past. Matterport seems like a pretty professional company. This has been around for a while, so I wouldn't worry too much about that.

And it seems like they have a good investor group. But with these things, we're not getting too much insight. And I'd honestly be worried about a company having too much cash because you can get really used to being able to burn money and that can build bad habits. Yeah, it's not a guarantee to occur, but, you know, here's you're comfortable with losing money. I'll pose this question before we get kind of before we go into the break is so they're going to have all this money post merger, hopefully six hundred fifty five million dollars.

And the idea is that they're going to use that money to go after this giant market. But don't you think that this market is more of like inbound sales than outbound sales? like i don't know it seems like customers would come to them as opposed to them going out to enterprises like hey you want us to take a picture or tour of your building and subscribe to us for months yeah i'm not i'm not sure you could be right there brad you have any thoughts on that yeah i think with with these business to business companies like like matterport is uh i mean the marketing won't be as is in your faces commercial campaigns hopefully because i don't think that will be all that effective marketing to consumers. But I think there are ways to reach an Amazon or

to reach somebody else and to market yourself in an external manner that it's more effective for B2B channels. Yeah. I mean, they could throw a lot of dollars after going after, say, Amazon, Walmart, some other giant retailer, Home Depot or something like that and say, hey, look, we'll hit your warehouses up and we're going to make your efficiency soar, something like that. Is that what the pitch is? There's all these different use cases for why you need a digital twin of your various buildings so it's probably best just have it or yeah and that's the whole question is can is matterport the one that can do this or could someone like amazon just build this tech themselves um and then on the consumer side and i guess we'll hit the

break after this because it's really for the second half on the consumer side it seems like it's more of a leap to if they want you know they're kind of marketing a little bit to be for consumers because they're you know they're pushing that i have the smartphone stuff it seems like it's going to take a little bit of a leap to convince people that this is something I need to do. But we can talk about that more in the second half. Let's hit the ad break and we'll get back to the show. This episode is brought to you by KPMG. As a business leader, how can you innovate, build trust, and move forward in a digital era? KPMG can help by bringing together the right talent and technologies, generating insights that spark opportunities. To explore their thinking,

visit reed.kpmg.us slash opportunities. tomorrow you triumph book your stay at lq.com okay welcome back let's hit some anecdotal evidence here brad uh looks like you got some you may have used the product or something you've been in a company that uses it yeah i was not trusted to use the product myself but i did observe my boss trying or fiddling with the product a little bit so um i started at bedrock detroit which if you're not familiar with that it's same family of companies as stockx and rocket um and rocket Mortgage. We were flirting with integrating this into all of our residential properties. I left before we made a decision and I have absolutely no idea what they decided. But the software was

really cool just for me, from me observing it. I mean, we talked about it a little bit, just kind of taking a picture of something and getting a detailed 3D rendering of it. It kind of felt like I was stepping into the future a little bit. So I thought it was cool. Yeah. If you know you want a digital twin uh and it's something that could help you it seems like the tech is pretty dang cool um but yeah ryan any other evidence you've found uh i haven't actually flirted with the product um as far as input like on the input side but as a customer i've seen like the videos and one video that gave me or tour that gave me sort of a good idea of the potential optionality was they went, it was a, an appliance retailer used the tech and you could just click on the

map, I guess, on their website or whatever. And you could walk through the store and it was like, all right, a chandelier. This isn't necessarily an appliance. Some different washer and dryers. Yeah. And you could like, I started to think about the e-commerce avenues where, oh, okay. I can click on that, see what it is, buy it, that kind of thing. Omni-channel. Yeah. Product identification. And they've talked about that as an extension. there's just it really reminded me the amount of different types of use cases that apply here that this tech could go to yeah and i think i agree too just the caveat is it's all potential a lot of it is potential use cases so it's a it's a wait and see almost you got to be confident in

the potential um and i guess the anecdotal evidence for me i have some comments but i really you know you don't want to get caught up in like kind of the tam sanity numbers they tout that 240 billion one. And then they tout like a $1.2 trillion one, which I think is a little aggressive for their product, which is, you know, it's kind of niche. But I found some comments on YouTube where there's this one, I think it was under that Lux Capital video. It says, quote, I use Matterport and DJI drones on a nearly daily basis for insurance claims, documentation and litigation support. The tech is game changing. Now, people are known to exaggerate in YouTube comments, but that's a good sign. And then, you know, that's great. But when I was looking up some

of the competitors, people said that, you know, quote, many agents find it to be expensive and complex. So the worry is that Matterport's tech is so good that for the simple use case of real estate, you don't need all this complication. And then some of the things like Zillow or those other ones I listed before could really solve the basic problem for residential real estate, which is a large part of their market. Yeah. I think, I guess right now it is, but they did obviously, I mean, they're really trying to push this. We want to sell to enterprises. So even if they're basically taking in free customers to do the residential, just to improve the algorithms, that's not really a bad idea because it just kind of builds a bigger spatial

data library. And there's a ton going after residential real estate, tons of companies. it seems like Matterport might be the only one that's trying to aggressively go off anything that's not residential real estate. So it's interesting. They might have an open playing field there, full ocean landscape. All right. Future growth opportunities, Brad, what do you got for us? So with the company operating in pretty much every single industry that buildings exist in, it's hard to peg a future growth opportunity. I will say I didn't see these global casino chains or maybe a Marriott or something like that as one of their primary clients or one of the highlights from the client list. So getting into all of these rooms, I think

would be a really compelling growth opportunity going forward, just considering there are tens of thousands of rooms just in Vegas alone. I did see a hotel chain. I forget the name of it. I did see a hotel chain on one of their presentations. So you're right. That could be a big expansion opportunity. Marriott's a customer. I think there was a Marriott on there. Yeah. So they have one, so they can expand to all of them. I mean, yeah. Awesome. Yeah. I really think that, that getting into these hotel chains, um, and they're in Airbnb. Um, so it was a place, so it's not, and you said they're in Marriott. So really not that big of a stretch. Uh, but the other growth opportunity I had, it looks like I'm stealing Brett's. So I'm going to let him cover

that one instead. Okay. Yeah. Well, you're on, you're a consumer. So I go ahead and take it. Because I think mine is going to be more for industrial, if you want to. Perfect. Okay. Well, I think, and this is reaching a little bit, but partnering with a Snapchat, I know they're doing a lot of stuff with augmented reality and really trying things on. But I just envision a really strange world, but maybe not so strange in 20 years, where instead of going to a mall, we're just walking through a mall with Matterport and with Snapchat

and trying various things on from the comfort of our own home. So a little bit of a science fiction future growth opportunity there. but I think it'll be a reality at some point. Yeah, Snapchat and Facebook could be good partners. Again, though, this is my worry. Do Snapchat and Facebook need Matterport to build something like this, or can they do it themselves?

I think that's the big question. Yeah. I mean, yeah, I guess the Oculus applications make sense or the Oculus partnership. For sure, for sure. Or if they have, and honestly, maybe more for Microsoft with their, because they're more for commercial,

like VR and AR stuff, right? I'll talk about mine. A future growth opportunity for me is launching the Android app. So it's currently in beta. And I guess this isn't some profound growth opportunity because they're already going for it. But I looked up just Android's market share of the mobile operating system world, and it says 72.8%. It looks like someone here has pegged a higher number. Yeah, so on the conference call that they did, the most recent one in either June or May, they said that 85% of smartphones, these are all estimates.

So it's just kind of majority. Okay. Well, uh, somebody, uh, correct. Google versus management. Yeah. Well, Google's the one that, uh, runs Android. So maybe, maybe that's right. Yeah. But this, I mean, this obviously leads right into the international expansion, which they are trying to go after with Android being so prominent internationally. Uh, if you can get user generated content from all these different people, uh,

obviously the international expansion will be made easier. And then another growth Avenue that I kind of wanted to talk about is the add so their platform allows a bunch of extensions and i think part of this could be made by other people with their apis but you can document certain pace like you're able to let's say scan through like a construction site and then you can tag stuff write notes so i i see i can see how the partnership with autodesk bm bim 360 yeah yeah so i mean those kind of extensions really start to get me sort of pie in the sky optionality mentality yeah and it is applicable to all spaces so the international push makes sense it's you know different markets are they're

all they're different though it's hard it's hard to win in so many different countries um and yeah future growth opportunities for me i mean they're launching partnerships left and right now we'll see what they end up bringing in in revenue but the latest one that i saw in the press releases was with ptc which is one of those cad tools i believe but they're kind of focused on augmented reality so they're combining for some augmented reality tools for industrial use cases there was a lot of buzzwords in the press release. I read it like three or four times and I couldn't keep up exactly with what it was, but it sounds like the combination of the spatial data technology from Matterport and AR tools from PTC for industrial use cases. I think the real estate

market could be crowded and tough to win, but it seems like the move out of real estate seems promising as almost no competitors are focused on that. So this seems cool. I mean, industrial stuff. There's so many things in like a manufacturing facility. There's so many things you could tag that can help people out. And as far as just data for their enterprise push, I think right now they have 13% of the fortune 1000. So the opportunity is still there to go after these big customers. For sure. All right. Highlights and lowlights, Brad, what do you like? What do you dislike about this business? Yeah. Pulling two of those shiny metrics that they listed from the SPAC presentation. So their LTV to CAC, which is lifetime value divided by

consumer acquisition cost is 12. That is unheard of, amazing, fantastic, crazy, world-class, if true. Two to three for an LTV to CAC is phenomenal. So 12 is just eye-poppingly phenomenal. Their retention rate also soared last quarter from 112% to 127%, which is also phenomenal. So this essentially means that they have a limitless supply of productive spending, of productive dollars to spend on profitable growth going forward. And with a pretty much limitless TAM, the runway looks just, it's mouthwatering. And again, I caveat that with, it's a SPAC presentation, 12 times LTV to CAC is unheard of, but that's what they're saying. So, yeah. Yeah. And I would add that if someone is saying their LTV to CAC is 12, then they raised

this $600 million, you should expect them to spend the $600 million and realize what, I don't know, lifetime value of billions of dollars. This gets into my question is if the CAC is so cheap, doesn't that mean it's coming from inbound? Like, like people are coming to you. How do you, what does the money do that you raise from this merger? That's, that is, that is a big question. All right. What about, what about low lights, Brad? Yeah. Low lights. So, um, I, I am going to go, it's hard to peg a low light outside of it's really expensive and that's against the rules, but I'll, I'll go with the margin profile, not being as compelling today as these other, as these other companies trading in the software as a service realm. Um, it has gone from 48% to

56%. That's admirable, admirable expansion, but for a company that's going to have a frothy multiple, like this one's going to have, um, 55% needs to continue going to 70, 80% for this to make sense. For sure. For sure. Yeah. That, that is a big thing to watch out over the next few years. Ryan, what do you like? What do you dislike about this? Before I start, I didn't interrupt any more of your highlights. Did I Brad? No, no. Uh, I don't think so. Yeah. I think I've got, Oh, Airbnb using it. Um, that's a cool customer. So I'll throw that in there, but you did not interrupt anything. Yeah. They got, I think Airbnb itself has 5 million homes. So that's, you know, talk about dollar based net retention rate. I mean, they could spend a lot of

money with Matterport. Yeah. I'll, my highlight here is there's no need to capture a structure twice. So the, I guess once you've done it, that's sort of an advantage, right? Because it's kind of maintenance. Yeah. You've used Matterport. So what's, you don't need to go switch. And I mean, Matterport doesn't have to acquire customers twice. It sounds like, so it's not like an Uber where they're competing constantly with Lyft and they have to go out and offer deals over and over. So I guess also the bigger the spatial data library gets, the bigger theoretically that their competitive advantage grows. If it is really a data advantage where it's helping inform the algorithms, that's great. Also, then the incentive for other platforms to

try to license it is also higher, which is 98% gross margin. So I'd love to see that become a huge like a huge part of their business for sure uh low lights for me the it's hard to understand the ins and outs of the tech so that makes it a little difficult for me to see how difficult would this be to replicate from like an alternative or a competitor but then also i think this is like two days ago the ex-ceo filed a lawsuit uh against the company claiming that matterport is putting onerous restrictions on the shares not a huge deal yeah they have a match group with the tinder founders it just sounds like there's a little bit of animosity between the old ceo and the current management i also i'm not in love with the current ceo i think they brought him in as a sales guy

probably um with kind of enterprise experience that's not there's nothing really wrong with them it's just i wasn't completely sold on it yeah that makes sense um i'll hit my highlights i mean mean, sum it up, it's pretty easy. The growth is great. The potential is great. The unit economics are great. If everything can eventually be fully automated, like we've talked about before, and that's what the tagging, et cetera, if they can use their, and these are buzzwords, but if they can use their machine learning algorithms and their AI tools, like they claim to basically automate everything for you or automate it to 95% accuracy or whatever, that value proposition versus the competitors will soar. Low lights though, I had two big concerns

that I'm thinking about. One is I kind of question how many people actually want to pay for this stuff at Matterport's premium price. Ryan mentioned that there's 83% of the new subscribers were free. Could they convert to paying over time? We'll see. We'll definitely see there. But from an individual's perspective, I just worry about who's going to pay for the product. Real estate agents definitely will industrial you know companies spend lots of money they got lots of money to spend but from individuals i i'm a bit concerned there and then you know claims of data advantages kind of throw me off because that's not you just have to take their word for and that's just tough to do uh and the last thing i worry about is this a tool or a company like

okay an example of what i'm thinking about here is you know something similar to this is the road a 3d view on google maps uh that took a long time to do but it's really been a great asset for google alone though the 3d view of roads is really nothing but it is a great feature on a product on a company you know if you think google maps is a separate company now of google maps i think they integrate with google maps and maybe that is yeah maybe maybe they do and that's what makes it valuable because they're kind of the middle part of all this. But I worry that where the value is going to drop, like who is going to accrue the value to here? Because one Matterport doesn't have much of a relationship with the end consumer. So sometimes those companies that sit behind

the company that has a relationship with the end consumer don't accumulate all the profits, but we'll see. We'll definitely see. And I could be definitely wrong there, but let's move to bull case and bear case. Brad, what kind of bull case you're seeing for Matterport at this valuation? Yeah. I mean, Century 21 and Redfin and Airbnb, again, as clients, it seems like they have a pretty tight grasp on this real estate market. But the bull case for me is really that this transcends the real estate market and they can get into, and there are compelling use cases and there is compelling utility for getting into other spaces like construction and all these other use cases that they call out. And if that's true,

then this 12 to 1 LTV to CAC, which means they generate $6 in gross profit for every dollar they spend today, and that's going to only go up, they can just be as aggressive as they want to at pursuing all this opportunity. I mean, the market's huge. And if they really are, I mean, they have 100 times more spaces than all their competitors combined. If that's really the advantage if that's if that's the indicator that their tech is that much more superior to their to the alternatives um and they can use this merger cash to go after it and get more customers the optionality is kind of endless and so the the bull case is kind of like the brian for all the approach i know it's obviously it's trading at like a three billion dollar valuation right now

but he said something along the lines of if it's sub three billion and i think well he said if it's have one billion i think it'll be a 10 billion dollar company i don't care what i pay for it i would there you could have the same sort of mentality here with matterport yeah i think that makes sense above a billion yeah i'll kind of go through some numbers that people might want to expect like at the current valuation if i'm not saying to this is to realize their current valuation because if you're investing in it you think it can provide good returns for you if you if you're investing in now you should really expect matterport to get to a few billion in annual revenue, and then around 500 million in free cash flow and order will have receptible

returns over this decade. I wouldn't be surprised if they can do that, but that is, it's just a ton of growth and that's what's getting priced in right now. All right. Bear case, Brad, I think we lost you, but are you back with us? Do you want to hear me? Yeah, you can hear it. Yeah, we can hear you. Perfect. So, so the bear case here is interesting. They, they, they are extremely ambitious. So they, they, to me, they have thing like ambition where they're not, they're not tackling the real estate market. They are tackling every single market that they, that, that has buildings. So the lack of focus, I think is, it could be seen as a strength, but I'll, I'll, I'll take it as a weakness here. There's going to be with, with the opportunity is compelling and

lucrative as this one, there is going to be a lot of competition and, and them being spread this thinly so early on doesn't seem like the best approach to me, to be honest. It's probably bolstering their growth right now, but I would have loved to honestly see them just dominate the real estate market and then expand into other places. Because, I mean, FANG names like Facebook and all of them, they didn't do everything at the very beginning. They did one thing extremely well, and then they went from there. And it doesn't seem like Matterport's doing that. And those type of companies got really, really profitable, started generating tons of cash that was you know reliable streams of cash that they could take and make these other bets

matterport seems to be announcing all these pro partnerships initiatives and it could work out but they're all doing it while they're raising money and burning a lot of cash at the same time yep yeah that's a good bear case it's kind of is am i using this right they're horizontal market is what they're going after they are yeah they're going after a horse yeah they're basically trying to go after a really it's a pretty thin one but i'm really just trying to be the whole horizontal value there in the valley uh everyone's tool but what yeah they are spread a little thin i guess for a company of their size uh the other bad case for me is that competitors catch up uh and i this is the part where i'm having a hard time distinguishing i mean the hundred times more

spaces figure is compelling if they have a data advantage that's great right but if they don't and and this sort of, I forget what you'd call it, photo-realization process product type of thing becomes commoditized, then the returns probably aren't going to be there. They're probably not going to be able to, it doesn't warrant this valuation. The assumption here is that the advantage is as big as they claim, and now they just need to go out and grab customers. Yeah, and I guess I say that I should rephrase what I mentioned.

It's that they have the data advantage, but the bear case is that it doesn't matter. um i'll hit mine i think if they struggle for product adoption outside of easy use cases that you know that's another thing i would have here and then i mentioned before but if the value in the supply chain doesn't flow to matterport or the spatial data aggregators then it could be a poor investment i'm i have no conviction that this will happen it's just something to think about um you know the end users of these for commercial or sorry for res uh for consumers or redfin Zillow, I guess, is a competitor, but you got Redfin and stuff like that. And then in industrial, you got Autodesk, Procore, PTC, stuff like that. Those companies are highly

profitable. Maybe Matterport is so asset-light that they're going to be able to be profitable too. It's just something to think about. I do think about, I question how valuable this is just in general, especially in the residential housing market. I guess maybe that's why they've made it free for like single subscribers but it's nice to have but it's not like a make or break on buying a home and you're probably even if you've gone and done the digital tour you're probably not going to buy a home without seeing it yeah that's true so is it just kind of a step in the process you don't need i don't know but i guess going after the enterprise i could see where why they would be willing to pay a lot more money industrial use cases you could see if they really

to get that tech up going. It can be very, very valuable. All right. What are your thoughts on Autodesk acquiring them? I said that. I think I said they were the one that got away. I think I tweeted that one time. I would be surprised. Autodesk is a serial acquirer. I would be surprised if they didn't make a push in Matterport because this fits right into almost all of their products. All right. More or less interested, Brad, what are your thoughts on Matterport overall? Yeah, I'll keep this brief. Definitely more interested. There are no red flags, in my opinion, only yellow flags. I'm going to keep an eye on this one for the next several quarters to see how real that LTVD CAC is, how real that expansion is, how real that 54%

projected CAGR is, but definitely more interested if it is real. Yeah. Ryan? More interested. And this is not something that I would refrain from paying a premium price for right now. Is it a bit of a premium? It's a premium squared price, I guess. Yeah. Just keep it on the watch list for the time being. Yeah. I'm in the same boat as you guys. I think we're really in agreement here on the watch list. Pretty compelling. This could be one that's a better risk reward opportunity three years from now.

I mean, it's it's pretty cool tech. And if they're right, you know, it could be it could be a great investment. But yeah, just keep it on the watch list for now. The last thing before we wrap up, we got stock for next week. Ryan, you got nothing for us? I forgot. You forgot? Well, let's not pick one just randomly. Yeah, when we think about it, it'll be a surprise. Yeah, I guess, yeah, we'll break the streak there,

and it'll be a surprise for next episode, but it should be fun. And if you're listening to this, the Thursday episode is going to be Robin Hood with Ian, a little growth hack to try to get as many listeners as possible. We have some fun takes on that show that everyone should listen to as well that'll be coming out a few days after this. Brad, anything else before we wrap up? No, I'm just excited to listen to your take on Robinhood.

All right, there, we got some spicy takes. They're a little bearish. Well, actually, it was balanced. Yeah, hopefully it's balanced. Yeah, hopefully. All right, that's going to do it for this episode. Thank you all for listening. Remember, we are not financial advisors.

Anything we say on the show is not formal advice or recommendation. Ryan and I are general partners at Arch Capital. Arch Capital clients may hold securities discussed in this podcast. Thank you all for listening. We'll see you next time.