XMTR - Xometry: Starting To Hit A Wall Short Term Not Looking Good

2023-03-09 05:11:58 ET

Summary

• Even with the correction in its share price, I don't think the company is close to reaching a bottom yet.
• Manufacturing slowdown could cause a lot more pain for the company.
• Although the company should struggle in the near term, over the long term, it will probably deliver solid returns for those that get in at a favorable entry point.

The share price of Xometry , Inc. ( XMTR ) plummeted 43 percent after the numbers from its latest earnings report revealed an increase in losses and failure for revenue to meet expectations, even though revenue was up 46.3 percent year-over-year.

Not only that, but guidance for the first quarter of 2023, and for full year 2023 was below consensus, suggesting the company is starting to lose growth momentum.

The stock was doing well from May 2022, when it started a nice run from approximately $26.50 on May 12, 2022, to a 52-week high of $64.34 on September 21, 2022, before plunging to $17.02 per share after its disappointing earnings report.

In this article we'll look at some of its latest numbers, company guidance, and why it is probably going to get worse before it gets better for the company.

Some of the numbers

Revenue in the fourth quarter of 2022 was $98.2 million, up 46 percent from revenue of $67.1 million in the fourth quarter of 2021, but down $5.4 million from the $103.6 million in revenue generated in the third quarter of 2022.

Revenue in the first quarter of 2023 is projected to be in a range of $100.00 million to $102.00 million, which would be up 20 percent to 22 percent if the company achieves that level of revenue.

Full year revenue for 2022 was $381.1 million, compared to full year 2021 revenue of $218.3 million. The company guides for full year 2023 revenue to be in a range of $470.00 million to $480.00 million.

Gross profit in the reporting period was $36.00 million, up 37 percent from the $20.9 million in gross profit generated in the fourth quarter of 2021, but down from the $40.9 million in gross profit generated in the prior quarter.

Adjusted EBITDA in the fourth quarter of 2022 was -$(14.2) million, compared to adjusted EBITDA of -$(11.9) million in the fourth quarter of 2021. Adjusted EBITDA for full year 2022 was -$(41.77) million, compared to adjusted EBITDA of -$(39.76) million for full year 2021.

Adjusted EBITDA margin was 14.5 percent in the reporting period, down from 17.7 percent in adjusted EBITDA margin in the fourth quarter of 2021.

Manufacturing slowdown could be a headwind

With the sourcing of manufacturing parts being the core business of Xometry, the ongoing slowdown in a number of parts of the sector could have a significant impact on the performance of the company over the next year or so, assuming the slowdown continues.

In surveys conducted by the Institute for Supply Management, new orders in the U.S. manufacturing sector have dropped for the sixth month in a row.

This is directly related to the ongoing boost in interest rates by the Federal Reserve, which is resulting in higher borrowing costs for larger items, and if it continues, it'll probably have an increasing negative effect on lower-ticket items as well, which would have even more of an impact on consumer spending.

With the Fed stating it's not done raising interest rates, it's certain to get worse before it gets better because of higher costs for items, stubborn inflation, and uncertainty in the labor market as many companies continue to shed workers in order to boost the bottom line.

Another thing to take into consideration is that manufacturing activity is probably even worse than thought because companies continue to work through backlog from the last couple of years, primarily from supply chain constraints during that time.

With many companies starting to catch up on past orders, it appears XMTR is starting to feel the impact of that, as it saw the number of orders in Q4 drop by 41 percent. It also started to compete on pricing to increase market share, but it brought about a decline in revenue instead.

Conclusion

I believe that over the long term XMTR should do well for investors, but for now I see it struggling to maintain momentum. Depending upon economic conditions in 2023, it's possible that the company could become profitable by the latter part of 2024. But if the economy goes into a recession that is deeper for longer, then profitability will likely be pushed out further into 2025.

With the share price of XMTR collapsing, I think many investors are thinking this may be a good entry point, and over time that may prove to be true for those investors patient enough to wait for the company to reward them.

But where the company stands today, I think it will probably drop further before it finally finds a bottom. Once the bottom is confirmed, that would be the time to take a position that increases risk/reward in favor of investors.

No matter what the long-term potential for XMTR is, I have no doubt it's going to struggle throughout 2023, and those getting in at the current, elevated share price level, will have to wait some time to get a profitable pay off.

With the challenging conditions the company faces, I think it's going to find it difficult to grow revenue, which in turn will put downward pressure on margins and earnings.

The key to short-term success for the company is directly related to the policies and actions of the Federal Reserve. Further out, it has a lot of good pieces in place that should, over time, deliver solid results.

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