S-1 Teardown: Xometry

S-1 Teardown: Xometry

July 9, 2021

The Bowery Capital team has spent the past year going deep on B2B marketplaces and interviewing leading founders and investors to learn what it takes to build success in the B2B marketplace arena. As the current generation of B2B marketplaces begin to go public, we will use these opportunities to analyze their businesses at a more granular level. Last summer, we were lucky enough to interview Xometry CEO Randy Altschuler and now that they have successfully IPOed, we wanted to take a deeper look at Xometry’s S-1 filing and share some of our perspectives.

The Bottom Line

  • Xometry is a modern marketplace for on-demand manufacturing processes including CNC machining, die casting, and 3D printing. Its platform offers buyers a simple and easy way to access a global pool of potential suppliers in what is an otherwise fragmented, opaque, and relatively ‘offline’ market. On the supply side, Xometry serves as free lead generation for manufacturers who may not have the resources, time, or expertise to engage in significant marketing initiatives. The supply side of the market pays nothing to access Xometry, while buyers pay an effective take rate between what Xometry charges them and what Xometry pays a third-party manufacturer to fulfill an order.
  • Xometry is much more ‘managed’ than many B2B marketplaces, with the company quoting buyers an AI-generated price, before turning around and leveraging the Xometry marketplace to find a supplier willing to take on the job. Manufacturing’s fragmented and regionalized nature makes it well-suited for a marketplace-driven solution. The company reported $141MM in revenues for 2020 with a 92% CAGR between 2018–2020, and it has been able to command an effective take rate of ~20%. Over the past year, Xometry has doubled its active buyer base, while also growing wallet share among existing marketplace participants, who accounted for more than 90% of 2020 revenues.
  • Xometry’s value-added services – which consist of MRO and financing solutions - only account for around 5% of its revenues. These offerings launched in mid-2020 and we expect their importance in the business to grow as they provide a way to monetize on the supply side while simultaneously embedding suppliers further into the Xometry ecosystem.
  • Xometry has seen a strong initial showing in its public market debut - a sign of growing investor interest in B2B marketplace companies.


The Company

Today, we look at Xometry, the most recent B2B marketplace to make its debut as a public company. Since pricing an IPO last week at $44 per share, Xometry’s first week of trading has seen its stock rise to north of $60. Xometry is a B2B marketplace offering a wide variety of on-demand manufacturing services; since being founded in 2013, Xometry has served more than 43,000 buyers, including ~30% of the Fortune 500, as well as 5,000 sellers, and it has facilitated the manufacture of more than 6 million unique parts.

Xometry is a highly managed marketplace and the company makes substantially all of its revenue on the spread between what it charges a buyer and how much it pays a member of its seller network to fulfill that order. Potential buyers initially submit a CAD file to Xometry of their proposed design, as well as other specifications about what part(s) they wish to have produced. Xometry then uses its own AI-enabled model to quickly provide the buyer a quoted price and lead time. Once this price is accepted, Xometry guarantees fulfillment and then turns to its seller network to find a manufacturer capable of completing the job.

In its S-1, Xometry identifies its key buyer verticals as Aerospace & Defense, Healthcare, Automotive, Consumer Goods, Industrial, Robotics, Government, and Education. Buyers who use Xometry include household names like NASA, BMW, and Moderna. By choosing Xometry, buyers get instant and competitive pricing, an easy purchasing process, and the ability to tap into a massive network of potential manufacturing partners. Like other B2B marketplaces, COVID-19 has at times acted as a tailwind for Xometry’s revenues and ClearMask – a transparent face covering – was Xometry’s largest single customer in 2020, accounting for ~11% of revenues (~$14MM).

For supply, Xometry relies upon a network of independent manufacturing firms who utilize the marketplace for convenient lead generation and who leverage Xometry to ease the administrative burden of contracting and to improve their cash management. The platform’s seller network provides six core manufacturing processes: CNC machining, 3D printing, injection molding, urethane casting, sheet metal and weldment fabrication, and die casting, as well as thousands of color, finish, and raw material customizations. Xometry helps sellers to increase their shops’ utilization and improve the predictability of revenues. For 2020, active sellers grew to 1,410 from 774 in the prior year; Xometry attributed the improvement in its 2020 gross margin to the rise in active sellers resulting in a lower cost of revenue.

Xometry effectively positions itself as the ‘seller’ to the demand side of its marketplace; this degree of management brings some risks as Xometry may not be able to find a manufacturer willing to build a given part at the price it quoted to the buyer, which could lead it to lose money on certain transactions. Part of Xometry’s flywheel is that as it enables more transactions, its datasets grow, and its AI can more accurately predict a price point that will entice the demand side of the market while still being profitable to fulfill. Xometry has several patents protecting its proprietary model for using machine learning to generate fabrication and manufacturing predictions around price, manufacturability, and material inputs.

The company cites its competition on the buyer side as coming from service bureaus and brokers, while on the seller side it views brokers and listing services as the primary alternatives. Xometry is also ESG-focused, offering platform participants the ability to easily purchase carbon credits to ensure their products’ manufacturing process is carbon neutral.

By The Numbers

Xometry has shown impressive revenue growth over the last three years, reporting sales of $38MM in 2018, $80MM in 2020, and $141MM in 2021. Xometry’s platform has also proven sticky with ~95% of revenues in 2019 and 2020 coming from existing buyers. This is indicative of expanding wallet share among the demand side, as this same timeframe also saw the unique number of active buyers almost double, growing from 11,527 to 21,128. As of March 30, 2021, over 400 buyers had spent more than $50,000 on Xometry in the preceding 12 months. This was a +30% YoY increase in the number of ‘high-value’ accounts, more evidence of Xometry’s success at growing wallet share among existing buyers.

Xometry’s long-term strategy involves expanding its seller capabilities, positioning itself as a workflow management tool for quoting, pricing, and administering all jobs a given seller is working on, regardless of whether they are being sourced through the Xometry marketplace or their own company websites. There is also talk of ‘productizing’ their internal AI so it can be embedded into CAD programs like Autodesk or procurement tools like Ariba, bringing Xometry closer to its buyer base, however, this is still conceptual. Geographic expansion offers further opportunities for Xometry’s long-term growth - the platform has served buyers in 51 different countries, but 95% of revenues were derived from sales to the U.S. In 2019, Xometry launched a European unit, and its global vision involves continuing to expand into new regions.

Market Size, Monetization, and Value-Added Services

Xometry estimates its potential market opportunity at $260B based on global spend in the six core verticals that align with its manufacturing offerings. In addition to charging a take rate on the demand side, Xometry has sought to roll out several value-added services in an effort to begin monetizing supply. These services can be bucketed into two categories: Xometry Supplies and Financial Products (which includes both Xometry Pay and the Xometry Advance Card). Xometry’s Financial Products help suppliers to manage cash flow by providing partial advances on outstanding orders and fee-based expedited payment options. While Xometry Supplies is effectively a ‘company store’ that provides discounted inputs to Xometry’s supplier community, thereby lowering their operating costs (and the price point they will be able to manufacture at).

Both the Supplies and Financial Products businesses are reported under the umbrella of Seller Services, which accounted for roughly 5% of Xometry’s $141MM in revenue (~$7MM) but this is expected to grow as these services, which only launched in mid-2020, gain traction. According to Xometry, ~40% of sellers have used at least one seller service (i.e., Xometry Supplies, Xometry Pay, etc.), however, this figure is not broken out by business line. Xometry’s Supplies and Financial Products improve the user experience for sellers which will keep more of them engaged with the platform, resulting in greater selection for Xometry to source competitive price quotes from for its buyer base.

Given its managed marketplace structure, Xometry’s top-line revenues of $141MM should be viewed as a proxy for the platform’s gross merchandise value. With a ~20% take rate, Xometry’s net revenues were $33MM in 2020 and $14MM in 2019; this may be a better metric than top-line revenues for understanding the health of the business as so much of Xometry’s top-line flows immediately to its supplier network.

Xometry claims an impressive 6.1x LTV/CAC ratio for its U.S. buyer cohort (a geography which comprises the vast majority of its buyers) and has roughly doubled gross revenues each of the last three years. Like ACV Auctions, Xometry is still unprofitable and very much a growth story. While it has a healthy take rate, Xometry will need to continue to rapidly expand marketplace adoption while controlling spend on sales, marketing, ops, and product in order to achieve profitability. This will be a challenge as Xometry’s losses have widened, even as revenue has scaled rapidly in the last several years.

Shareholders & Offering Details

Prior to its IPO, Xometry raised more than $160MM from a group of prominent venture investors. Today, shareholders with a more than 5% economic interest in the company include founders Randy Altschuler and Laurence Zuriff, as well as investors T. Rowe Price, Highland Capital Partners, Foundry Group, BMW iVentures, and Greenspring Associates.

A dual-class share system magnifies the relative voting power of Xometry’s cofounders. Post-IPO, Altschuler and Zuriff will still maintain ~60% of the voting rights even though their economic ownership is far less. This is consistent with recent SaaS and marketplace IPO trends which have seen founders maintain outsize voting rights relative to their economic ownership through dual-class share structures.

The proceeds of Xometry’s recent $302MM IPO will be used to pay off a $15MM venture debt arrangement with Hercules Capital and to provide the company with additional working capital as it looks to win the custom manufacturing segment. Xometry’s value has risen precipitously in the last year; in an August 2020 tender offer, several insiders sold shares to third-party investors for only $8 each (today Xometry trades above $60 per share). Xometry’s current enterprise value is ~$3B and on a relative basis it is trading at ~20x of gross revenues and ~90x of net revenues. Given its current multiple, investors will expect Xometry to continue posting dramatic growth in the quarters to come. We are looking forward to following Xometry’s progress in the coming years and will be continuing to break down B2B marketplace S-1’s as more and more marketplaces reach public company scale.

If you liked “S-1 Teardown: Xometry” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog. Look out for more content on B2B Marketplaces from us in the coming weeks.

Related Blogs

S-1 Teardown: ACV Auctions

ACV is one of the first of this generation’s B2B marketplaces to go public and its S-1 is a unique chance to look ‘under the hood’ at the economics of a vertical marketplace that has achieved public company scale.

March 23, 2021 Read More