Xometry, a marketplace for buyers and suppliers of manufactured parts filed to go public. It’s an intriguing business in a hot space as indicated by:
- 76% revenue growth for the year ended March 2021 and
- the attraction of competition from Kreatize, Zetwerk, Jiga, Fictiv, Fast Radius, Protolabs, and some non-marketplace players who make it easy to collaborate with job shops, such as Paperless Parts.
As usual, I’ll focus on Xometry’s value proposition and unit economics, as opposed to the company’s valuation which others will cover.
What does Xometry Do?
Xometry solves the lengthy and gnarly process pictured to the left. It smooths the RFP-to-pay process for buyers and the quote-to-cash process for suppliers of manufactured parts. Xometry allows buyers of complex manufactured parts to upload an engineering schematic of a part (typically a CAD file) and receive an instant quote for that part. To do this, Xometry uses an AI-enabled quoting engine taking into account the design, manufacturing process, and material of the part. (Maybe it also takes into account the margin it thinks it can make.) The company commits to providing the part to the buyer and then procures the part from its network of over 5000 sellers. Xometry currently quotes parts made with the following manufacturing processes:
- Urethane casting
- Sheet metal
- Die casting
- Injection molding and
- 3D printing.
Value Proposition for Buyers
Xometry’s value proposition for buyers is:
- a speedier quoting processes (quoting can be complex and often requires human judgment)
- vendor consolidation (Xometry, gives instant access to 5,000 sellers and a variety of manufacturing processes)
- a simple, reliable, and additional quality control monitor
Value Proposition for Suppliers
Xometry’s value proposition for suppliers is:
- access to the Xometry customer base
- a single, consistent customer using digital processes to buy and pay
- discounts on supplies and MRO
- value-add financial services such as advances and speedier payments
The company introduced Xometry Supplies in 2019 and the Xometry Advance Card in 2020 (courtesy of Stripe). Already, an impressive 40% of active suppliers have availed themselves of one or more of these supplier services. (Xometry notes, however, that revenue from these supplier services represented less than 5% of total revenue in 2020.)
A Managed Marketplace (Reseller?)
If you followed my description of Xometry’s business above, you figured out that Xometry is not a “pure” marketplace, in the sense of an eBay, Upwork, or AirBnB. Xometry is not matching buyers directly with suppliers. Practically speaking, Xometry is the supplier. (See Andrei Hagiu for a recent great article on the continuum from “pure marketplaces” to resellers as well as other platform-related content!)
Xometry sets the price for the item, chooses which seller to use (on the basis Xometry chooses –e.g., price, quality, and turnaround), acts as the supplier in the buyer’s vendor master, and takes complete responsibility for quality and delivery. It’s not clear to me if the buyer even knows who the supplier is, or vice versa. (Though it is probably hard to keep the supplier from knowing what company is buying if the supplier sees the drawings!)
Xometry tells us that:
Following a successful transaction, we initially offer the same seller the exclusive opportunity to accept the next repeat order in order to increase efficiency and reliability.
This policy is in place undoubtedly to increase efficiency and reliability as well as to decrease the chances that a buyer-supplier pair will go “off-platform” for subsequent/repeat transactions.
Xometry Economics and Metrics
Because Xometry is the setting the price and buying the goods, its revenue includes the GMV and its gross margin is its “take rate”. For the year ended March 2020, Xometry sold $141 million worth of manufactured goods and had a gross margin of 20%. (The gross margin increased from 17% in 2018.) This gross margin generated $33 million in gross profit on expenses of $62 million, for a loss from operations of $62 million.
Key metrics for the marketplace are as follows:
- Xometry reports 5000+ sellers, but only 1,410 of those were active in the year ended 2020. (This is not uncommon. I give the company credit for disclosing active numbers, as many platforms do not.)
- The company reports 43,000 buyers (individuals), with 24,160 of those buyers active in the past year.
- The number of buyer accounts with $50k or more in LTM purchases was 412, which was up 34% from the year prior. This a lower growth rate than overall revenues.
- By my math, the average active buyer made purchases of $6-7k and the average active seller had sales of about $100k.
It is still a pretty young marketplace.
For the year ended 2020, Xometry reports an LTV to CAC ratio of 6.1x and attractive growth in spend by each cohort. The company gives us many reasons to believe it will grow its way to profitability, beyond simply acquiring more customers, growing wallet share, and enjoying the margin leverage of some fixed costs:
- As Xometry grows, the company says its AI quoting engine will become more accurate, which should improve gross margins.
- As the marketplace attracts more buyers and more suppliers, prices paid to suppliers should also go down. Xometry is also working to add more suppliers in APAC which will increase competition and gross margins. (The company has to soft-pedal this issue a bit, for obvious reasons.)
- Xometry sees an opportunity to sell more of its existing supplier services, but also to “become an enterprise solution for our sellers.” One could imagine the company adding quote-to-cash solutions and other solutions to the manufacturing side.
- Geographic expansion is also an opportunity, as over 95% of existing revenue comes from buyers and sellers in the US. The company has “a small team in China that is managing our manufacturing network in that region. We expect to make significant investments in growing that team, as the Asia-Pacific region is an important opportunity for the growth of our marketplace.” Managing the competition from APAC will be a challenge for existing sellers and the marketplace as Upwork and Mfg.com have learned.
- Acquisitions could take the company into new categories, services, or geographies.
Nine Value Propositions of B2B Platforms
As loyal readers know, one way I like to evaluate platforms is by how many of the nine value propositions of B2B platforms a company is exploiting and how well they are doing so. Xometry is working on more value props than most at this early stage:
- As a marketplace, it is by definition a matchmaker and a bit of a credentialer.
- Xometry offers leveraged contracts to its suppliers in the form of Xometry supplies.
- The company offers transaction financing and payment solutions to its sellers.
- One could argue its AI engine is an example of industry big data.
- And if humans are still heavily involved in the quoting process or follow-on processes, it might be a managed service, rather than a managed marketplace.
This one will fun to watch as it grows.