Bear Takes Aim at Voxeljet; a Fool Fires Back

Shares of Voxeljet crashed more than 32% in trading today thanks to a bearish report. Here’s why you shouldn’t be too worried about it.

Steve Heller
Steve Heller
Nov 20, 2013 at 6:30PM

After yesterday's horrible day for 3-D printing stocks, the bleeding didn't stop today. Earlier today, Citron Research published a bearish report on Voxeljet (NYSE:VJET), sending shares down over 32% on the session. In the past two days, Voxeljet's stock has tumbled well over 40%, officially putting into question the viability of this emerging 3-D printing player.

Other 3-D printing companies sold off again today in sympathy. ExOne (NASDAQ:XONE) closed down nearly 9%, 3D Systems sold off nearly 8%, and Stratasys pulled back 4%. As a result, this bearish report may present a buying opportunity for long-term-focused 3-D printing investors.

Breaking down the bearishness
Citron took aim at what it believes to be glaring issues with the quality of Voxeljet's earnings. First is that the company sold only three printers during its third quarter, which represented an increase of 50% unit growth (one printer) from the year prior. If we've learned anything from ExOne's earnings, it's that industrial printers that can cost upwards of $1 million have extremely long and difficult sales cycles. You shouldn't expect Voxeljet's sales cycle and pace to behave any differently, especially since it's an earlier-stage growth company than ExOne.

Citron also took issue that one of Voxeljet's printer sales involved a loan, meaning the company hasn't actually received some of the cash related to a specific printer sale despite recognizing the revenue on its earnings report. Buried within its quarterly SEC filing, the company acknowledged that a loan was granted to a customer in connection to a 3-D printer sale in the amount of 678,000 euros, or about $915,000. During the quarter, Voxeljet recorded 1.8 million euros in printer sales, meaning this loan represented about 37% of the company's printer revenues. Considering one of Voxeljet's 3-D printers can cost north than $1 million, I'm having a hard time finding fault with customers who want financing terms.

In addition, Citron didn't like that Voxeljet recognized revenue of 868,000 euros in connection to the consideration of two printer sales during the quarter, which Citron classified as more loans and no money in the bank. Because Voxeljet doesn't go into extensive detail about the matter, I've reached out to the company for further clarification. However, it's worth noting that for Voxeljet to recognize this revenue in compliance of generally accepted accounting principles, or GAAP, the company is awfully confident that these sales are a done deal.

Finally, Citron seems to believe that every printer sold during the quarter was sold at a discount to list prices because the deal related to the two printers and the 868,000 euros in recognized revenue acknowledged that it did include a discount. I may be going out on a limb here, but maybe a company in Voxeljet's emerging position doesn't necessarily have pricing power. After all, the company has sold only a handful of printers during its entire lifetime, which may make prospective customers a little gun-shy toward buying a million-dollar 3-D printer from a potentially unproven vendor. At the end of the day, it's far better to make the sale than to make nothing at all, considering the company has a very limited installed base to begin with. Oh, and this didn't stop Voxeljet from improving its 3-D printer segment's gross profit margin by 5.6% year over year to 38.8%.

What Citron didn't mention
The reason Voxeljet became a public company in the first place was to grow its operations and become a much larger player in the industrial 3-D printing space. By doing so, the company raised about $65 million, of which $40 million will be put toward expanding its on-demand parts service center in Europe, and establishing two new on-demand service centers in Asia and North America. From the remainder, $10 million will be put toward research and development and sales and marketing initiatives. Contrary to Citron's belief, Voxeljet is a real business with real long-term goals.

Whether you're a Voxeljet investor, or an investor in other 3-D printing stocks, I wouldn't put too much weight behind Citron's assertions and the short-term damage it caused. Over the long term, the market will likely come to terms that Voxeljet is a real business that can achieve its goals. In fact, Citron may have given prospective 3-D printing investors with a long-term mind-set an opportunity to get invested for a better price.