XMTR - Is Xometry On A Path To Profitability?

2023-11-15 05:02:24 ET

Summary

• Xometry reported its largest revenue ever, with an 18% increase compared to the first three quarters of 2022.
• Gross profit increased by 16% when compared to the first 9 months of 2022.
• Active buyers on the platform increased by 8% since Q2 and are up 42% year-over-year.

Xometry (XMTR) is an on-demand industrial parts marketplace that connects buyers with parts manufacturers all over the world. Up to this point, they have struggled to find the path to profitability but with solid growth in many areas, we believe they're on the right track.

The Good

- Xometry reported its largest revenue ever. Compared to the first three quarters of 2022 revenue was up 18% from $282 million to $335 million.

- Gross profit was up 16% from $111 million to $129 million when comparing the first 9 months of 2022.

- Active buyers on the platform are up for the fifth consecutive quarter. Active buyers increased 8% since the end of Q2 and are up 42% YOY.

- Net loss decreased in Q3 2023 to $-12 million from $-15 million in Q3 2022.

- Gross margins on their marketplace have increased from 4.7% when comparing the first 9 months of 2022 to first 9 months of 2023.

The Bad

- At the end of 2022 Xometry closed out the year with $65 million of cash and cash equivalents and that number currently sits at $44 million. This is an increased cash burn rate from 2022-2023 when cash and cash equivalents decreased by $21 million. If Xometry is unable to become profitable this could leave the company no choice but to dilute shareholders.

Managements Projections for Q4 and Beyond

During the Q3 conference call management expressed optimism that revenue would be up in Q4 in the range of 30%. They also expect marketplace gross margins to increase sequentially quarter-over-quarter, "driven by our machine learning algorithms and the growth of our network of suppliers". With these changes they see a possibility to break even in Q4.

Thesis

Xometry has suffered a battering down over 40% YTD and 70% since it went public in mid-2021. This should be no surprise with their inability so far to turn a profit. Despite this, we believe that management is on the right track and we are approaching the light at the end of the net profit tunnel. With continued strong quarter-over-quarter active user and revenue growth, they firmly maintain their position as the leading marketplace for on-demand parts manufacturing. With their new partnership with Google Cloud to leverage Vertex AI we believe they will see continued increases in their net margins on their marketplace due to improvements in their instant quote engine. They are also rapidly expanding into new markets with a 78% YOY increase in revenue from international clients. Their international revenue has increased from $2 million in 2020 to $52 million in the last 12 months. Our main concern is cash burn in the time it takes them to become fully profitable. With their current cash on hand and the rate which they are spending that should comfortably get them to early 2025 before the risk of a secondary offering and the need to dilute current shareholders become a concern. Taking this all into consideration we are going to rate Xometry a tentative buy. While we believe they are on the right track it will take several more quarters of continued strong execution to reach full profitability. In the meantime we will continue to follow up and Xometry's quarterly performance and look for continued growth in revenue, active buyers, and the so far elusive net profit.

For further details see: