November 16, 2022 - 3:19pm EST by
2022 2023
Price: 45.00 EPS negative negative
Shares Out. (in M): 45 P/E na na
Market Cap (in $M): 2,200 P/FCF na na
Net Debt (in $M): 100 EBIT 0 0
TEV (in $M): 2,200 TEV/EBIT na na
Borrow Cost: General Collateral

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Xometry describes itself as a “leading AI-enabled marketplace for on-demand manufacturing” that uses “our proprietary technology to create a marketplace that enables buyers to efficiently source on-demand manufactured parts and assemblies and empowers sellers of manufacturing service to grow their businesses.”

In plain English, we would describe them as  “middle man” for prototyping and small batch manufacturing of parts and assemblies that require services such as 3D printing, CNC machining, injection molding, die casting and metal stamping.  

The company went public in June 2021 at $44, closed it’s first day at ~$87 and faded quickly over the ensuing 12 months to the high $20s before rallying ~100% earlier this fall. The S-1 and 10-K are both a cornucopia of buzzwords with terms such as artificial intelligence, carbon offsets, and ESG appearing too many times to count with precision. Naturally it has the requisite made up word as a name, complete with the first letter X being pronounced as Z. We do give them credit for including all appropriate vowels, which we found disappointing in pursuing the short case against the stock.

In our assessment, Xometry: 1) is an okay business (it’s not a fraud) with significant competition 2) demonstrates less than stellar financial results or potential and 3) is significantly exposed to macroeconomic headwinds. We envision 50% to 75% downside should the company continue to disappoint and the stock follow the path of its public peers.

Xometry's core product offering is not a terrible idea. Let's say your friend Bob runs a company that makes shopping carts (way more fun that running a L/S fund.) Bob want to design a new handlebar for it and needs injection molding or 3D printing services to prototype and then manufacture the handles. Bob signs up for a Xometry account and uploads his design (CAD drawing, etc.)

Xometry then uses it’s AI platform to provide Bob with an instant price and lead time quote. If Bob accepts it, they match him with a supplier. In Xometry parlance they match customers and suppliers based on “order feature and supplier scoring…” but in reality, they just put the job out for bid on their network and see who takes it.

This is where Xometry becomes a marketplace rather than an exchange. They aren’t just matching customers and suppliers…they are setting the price for the customer and then hoping they can find a supplier who takes it at a price that affords them a profit. It’s more of a prop book than a trading operation. More profitable, of course, but as the company found out last quarter, also riskier.

Not a terrible business model…it’s a big TAM (they claim $2T+, naturally) and you can see the value proposition for Bob or any other customer. But the thing is…they aren’t the only ones to have figured this out. Yes, it’s a big TAM, but the barriers aren’t terribly high, which means there are plenty of other players in this market, including the suppliers themselves who offer easy-to-use online design and quoting services. Go visit the landing page for ProtoLabs, Stratasys, Materialise, UnionFab (these names are going break my spellchecker) or dozens of others and one of the first things you will see is a big “Get a Quote” button where you can contact them directly. Related aside – Xometry is clearly spending heavily on Google Ad Words – a search for any of the aforementioned companies gets an ad for Xometry as the top result.

Xometry does not currently make money and burns a fair amount of cash in running their business. While that is perhaps to be expected, our bigger concern is that we do not see a clear path towards profit or positive cash flow any time soon. While gross margins are increasing nicely with scale, the company is spending heavily at the operating level in an effort to take share and generate top-line growth. Their losses are keeping pace with their top-line growth even in a strong economy over the last several years. Below is a snapshot. I gave them credit back for the IPO transaction costs, but didn't bother with any of their other adjustments (SBC, etc.) They are spending more each year. You can see it. It can't be adjusted away.

  LTM September 2022   2021   2020   2019
Revenue                   282,857         218,336         141,406         80,228
Cost of revenue                   171,321         161,195         108,120         65,492
Gross profit                   111,536          57,141          33,286         14,736
  39.4%   26.2%   23.5%   18.4%
Sales and marketing                     58,846          39,422          22,567         14,599
Operations and support                     36,158          23,683          14,111         10,314
Product development                     22,698          17,780          12,186         10,637
General and administrative (adj for IPO costs)                     43,143          29,246          12,046          8,016
Impairment of goodwill and intangible assets                         444                 -              1,592          1,719
Total operating expenses                   161,289         110,131          62,502         45,285
  57.0%   50.4%   44.2%   56.4%
Operating Loss (GAAP ex- IPO costs)                         (49,753)           (52,990)           (29,216)         (30,549)


Our next concern is what happens when the economy weakens, and we got a taste of that on their Q3 earnings report. As near as we can tell, over the course of the last several months, suppliers began  accepting jobs faster and at a lower price than the company’s AI might predict. As a result, the system “learned” that it should provide quotes to customers at, you guessed it, lower prices. Basically, as the economy has softened and suppliers have rushed to capture jobs and been willing to accept lower margins to do so, the system began passing this information (and savings) along to customer. Since Xometry’s revenues are predicated almost entirely on the price customers pay for a job, this began to impact financials late in the quarter and as a result the company guided down revenue and EBITDA guidance for both Q4 2022 and FY 2023, as well as pushing out their target for adjusted EBITDA profitability. For a company that touts (ad nauseum) their super awesome AI engine, we find this all...worrisome.

This guide down happened in the context of pricing alone, not a volume drop off. We would not be surprised to see the volume shoe drop next year,and given the operating leverage in the company’s gross profit line and the relatively high (and growing) fixed cost nature of the company’s operating expenses, things could be ugly, and right quick.

With a stock trading at ~4.5x revenues and down ~50% but still at the IPO price vs. a comp universe 3-D printers and short run fabricators in the 1-2x range (and most of their stocks down 60 to 90% over the last 18 months), we think further hiccups in Xometry’s financial performance could lead to dramatic downside in the stock.

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


- Volume curtailments

- Further pricing problems

- Fixed cost de-leveraging

- Earnings misses

- Guide downs

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