2Q24 Pricing Analysis Affirms Robust Xometry 2Q24 Results, But Revenue Per Active Buyer Is Continuing To Decline
Key Takeaways: Xometry XMTR 0.00%↑ announced strong 2Q24 results with revenues and adjusted EBITDA that exceeded both Management and consensus expectations. Furthermore, 3Q24 revenue guidance missed slightly, and adjusted EBITDA guidance was in-line with analyst expectations. Given the strong 2Q24 execution, better than expected profitability and what we believe were very long expectations given poor peer results and economic data shares traded up 40%+ post earnings.Â
Looking back at our 2Q24 Pricing Analysis, we are not surprised by these results given the robust price acceleration we saw on Xometry’s marketplace through the month of June that has also continued through the month of August. Given the macro headwinds, we applaud Xometry for these strong results and being able to grow their Marketplace revenues 25% in a challenging manufacturing environment. Unlike Protolabs who provided cautionary 3Q24 guidance, Xometry Marketplace continues to flourish and is likely taking share in the low-end prototyping market. We were also impressed with Management’s cost controls, but do not believe this is sustainable. That said, we remain cautious on the company’s long term revenue and profitability outlook, as we believe the Company will struggle to expand revenue per active buyer, which declined again Y/Y in 2Q24. We expect these strong results will excite investors, but likely once again inflate profitability expectations. Our bearish thesis remains intact as we believe the Company’s inability to increase revenue per active buyer will force the Company to continue to accelerate spend to grow and underwhelm investors profitability expectations.
View detailed historical results in our full downloadable financial excel model here.
Source: Company Filings, FactSet; Data In Millions
2Q24 Earnings Summary
Xometry reported 2Q24 revenues growing 19.4% Y/Y to $132.6M, which was above the Company’s prior guidance ($127 - 129M) and consensus expectations ($128.9M). Revenue in the quarter was driven by Marketplace revenues growing 25.4% Y/Y to $117.3M. Meanwhile, Supplier and Services revenue declined 12.5% Y/Y to $15.3M, which was impacted by discontinuation of the sale of tools and materials. Revenues in the US were up 17.5% Y/Y to $112.2M. Sales Internationally were up 31.2% Y/Y to $20.4M, but was a deceleration from over 70% Y/Y growth over the prior 5 quarters. While Xometry saw LTM Active Buyers grow 27.4% Y/Y to 61,530 and added 3,026 new buyers Q/Q, we believe Revenue per Active Buyer declined 5.7% Y/Y to $8,164 marking a 5th consecutive quarter of Y/Y declines.
We were impressed with Xometry’s ability to continue to expand gross margins by 80 bps Q/Q to 40.0%, as the company’s AI-powered marketplace continues to improve operational efficiencies. Marketplace gross margins were up 180 bps Y/Y to 33.5%, while Supplier Services gross margins were up 910 bps Y/Y as the Company focuses on higher-margin business segments. Xometry sees gross margins expanding further in 2024 and targeting 35% by the end of the year. Furthermore, the Company showed strong cost controls in the quarter with opex flat Q/Q, which drove impressive operating leverage Y/Y. Specifically, marketing spend as a percentage of revenue was down to 6.9% of sales. We are cautious this lack of spend is sustainable as competition intensifies with the emergence of new marketplace players like Protolabs. Driven by higher gross margins and lower opex, Xometry reported 2Q24 adjusted EBITDA loss of $2.6M, which was better than Management expectations ($8-6M) and analyst expectations of a loss of $6.5M.
Xometry is expecting 2Q24 revenues to be between the range of $136 - 138M, which assumes 15.2% Y/Y growth at the midpoint but modestly below analyst expectations ($138.9M). They continue to expect fiscal 2024 Marketplace revenue growth of at least 20% Y/Y and expect Supplier Services revenue to be down approximately 10% Y/Y driven by the discontinuation of the sale of tools and materials and the wind down of non-core services. This implies mid-teen percent Y/Y growth. Driven by expected margin expansion and strong cost controls, Xometry guided 3Q24 adjusted EBITDA loss of $1.5 - 3.5M, which was in-line with analyst expectations of a loss of $2.8M.
Although not a near term concern, Xometry’s convertible debt note of ~$280M is coming due in 2026 and the Company continues to burn cash bringing their net cash position to a negative $41.8M.
5-Year Financial Outlook
Following 2Q24 results, we have left our revenue estimates mostly unchanged and expect the company to grow revenues 14.3% Y/Y to $529.9M in 2024. Although we believe Xometry can sustain mid-teen revenue growth through 2028, we believe increased competition from the likes of Protolabs will put pressure on Xometry as conditions normalize. In addition, we believe revenues per active buyer is continuing to decline and prove out our core thesis and fundamental flaw in the manufacturing marketplace business. When customers need prototypes and low-volume part orders, Xometry is an efficient solution. However, as customers need to go from low to high production part orders it will not make financial sense to pay the 30-40% markup (XMTR gross margin) Xometry charges on their marketplace and rather go directly to the manufacturer. However, we are impressed with the continued gross margin expansion and have raised our gross margin estimates modestly through 2028. That said, we expect the lack of revenue growth per active buyer will pressure profitability, and show the Company’s 20 - 30% adjusted EBITDA margin target is a pipe dream. Without a meaningful restructure, we believe mid-single digit EBITDA margins are more likely in 2028.
Below is an overview of our 5 year outlook with a full downloadable financial excel model here.
Source: Industrial Tech Analyst; Data In Millions
Investment Thesis
We can not deny that Xometry has been a true disrupter to the digital manufacturing space as their Marketplace revenues have grown from ~$80M in 2019 to ~$500M+ run rate in 2024, and proven the ability to continue to grow double-digits in a tough manufacturing environment. We do believe Xometry will continue to grow, but are cautious on the Company’s revenue and profitability outlook with the quick emergence of new marketplace players such as Protolabs and continued challenging macro environment. Furthermore, while we believe Xometry is a great tool to secure prototypes and low-volume production parts, we believe Xometry will struggle to increase wallet share among customers. This coupled with higher opex spend to support new buyer growth, we believe the company will continue to underwhelm investors profitability expectations. These all support our bearish stance and $9.77 price target.
As shown in our table below we use a 5 year DCF model to value Xometry shares. Based on our current forecast that includes a 15x EBITDA multiple to our terminal value, we value Xometry shares at $9.34, which we increased from $8.71 due to our higher gross margin estimates.
Source: Industrial Tech Analyst, Data In Millions Except Price Target
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