Shares of Desktop Metal (DM -2.98%), a maker of 3D printers, got cut literally in half on Tuesday -- down 53% as of 3:15 p.m. ET, despite the company reporting first-quarter revenue ahead of expectations. The problem: Desktop Metal also reported earnings way below expectations.
Heading into the quarter, analysts had forecast that Desktop Metal would lose $0.13 per share on sales of $41.6 million. In fact, the company lost $0.22 per share, despite sales coming in at $43.7 million.
Desktop Metal actually grew those sales 286% year over year -- and reaffirmed its guidance for the rest of this year ($260 million in sales, by the way) to boot. None of this, however, was enough to convince investors to forgive the earnings miss -- or the fact that even gross profit margin, which had held steadily in positive territory for the past three quarters, has now sunk back into the red (negative 3%).
It probably didn't help matters, of course, that after reporting all the above, Desktop Metal proceeded to announce that it will sell $150 million worth of convertible senior notes (i.e., debt that is convertible into equity) at an interest rate yet to be determined.
Desktop Metal said it needs the extra cash to fund "working capital expenditures and for other general corporate purposes" -- and I fear that's the other bad news today. In addition to missing on earnings, Desktop Metal also saw its cash burn accelerate to $60.3 million in the quarter.
Although the company has more than $100 million in cash in the bank, and a further $100 million-plus in short-term investments that are fairly easy to convert into cash, at the present burn rate that cash and near-cash could be all but exhausted in less than a year. Raising more cash now, before it's technically needed, may be the right financial move. But it still serves as a reminder that Desktop Metal is not yet a viable, cash-generating business.
I'm afraid that's as good a reason as any to sell the stock today.