What happened
Shares of custom manufacturing platform Xometry (XMTR 2.24%) skyrocketed on Wednesday after the company announced financial results for the first quarter of 2023. As of 2 p.m. ET, Xometry stock was up a whopping 35%.
So what
In Q1, Xometry generated revenue of $105 million, up 26% year over year and ahead of management's guidance of $100 million to $102 million.
The company offers a two-sided marketplace that connects buyers with makers of custom manufactured products, like sheet metal forming and CNC machining. But it also sells digital services to suppliers. Revenue for its supplier services business fell 3% compared to the same quarter of 2022, but its marketplace revenue soared 35% higher.
Importantly, Xometry ended Q1 with over 44,700 active buyers, a sharp increase from the more than 40,600 active buyers it had at the end of 2022. And it had just over 1,100 buyers spending at least $50,000 annually, up from roughly 1,000 at the end of 2022.
Surprisingly, Xometry's marketplace revenue is lower margin than its supplier services revenue. Therefore, since marketplace revenue was growing faster, the company's overall gross margin slipped from 38.7% in 2022 to 37.4% in Q1.
Still, it seems the market was willing to overlook this shortfall and celebrated better-than-expected top-line growth instead.
Now what
Looking ahead, Xometry is maintaining its full-year revenue guidance of $470 million to $480 million despite its outperformance in Q1. Moreover, its guidance for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) actually worsened. Before, the company was guiding for a full-year adjusted EBITDA loss of $22 million at most. But now, it's guiding for an adjusted EBITDA loss of $24 million to $26 million.
Usually, I'd expect a stock to fall if it had outperformed for a quarter, maintained full-year guidance, and lowered profitability guidance like Xometry did. However, I believe investors had low expectations that the company surpassed today, leading to the skyrocketing stock price.
Outperforming low expectations can certainly send stocks higher in the short term. But if it's going to create lasting shareholder value, Xometry will need to continue finding users and improving its profit margins. In light of this, I'd say Xometry made some promising progress in Q1, but it still has plenty of work left to do.
