Desktop Metal Inc (DM)DM

Desktop Metal Inc. (DM): A Stock Overview

Company Profile:

1. History and Background: Desktop Metal Inc. (DM) was founded in 2015 in Burlington, Massachusetts. Its mission is to transform manufacturing by making metal 3D printing accessible and practical. DM has established itself as a leader in additive manufacturing technologies. In 2020, DM went public through a reverse merger with SPAC Trine Acquisition Corp.

2. Core Business Areas: DM operates through two segments:

• Production Systems: DM develops and sells metal 3D printing systems (Studio System, Production System) and materials for manufacturing businesses.
• Boundless Platform: DM offers a 3D printing as-a-service platform (DM Flex) for prototyping and low-volume production.

3. Leadership and Structure: Ric Fulop serves as the CEO and co-founder. DM employs a decentralized organizational structure with independent divisions for its business segments. Additionally, it operates in North America, Asia, Europe, and South America.

Top Products and Market Share:

1. Products:

• Production System
• Studio System
• Desktop Health (medical division)
• Fibe.x
• SHOP System

2. Market Share: DM is a relatively new company and does not disclose exact market share figures. As per industry estimates, DM held a 7.3% market share in metal 3D printing equipment for the year 2020, with the market projected to grow significantly in the coming years. Their main competitor, EOS, dominates the market share but has been losing some ground compared to DM.

3. Performance and Reception: DM's Studio System caters to smaller companies and research institutions, while Production System targets higher print volumes. The SHOP System allows DM to collaborate directly with industrial users for customized production requirements.

Total Addressable Market:

The global metal 3D printing market is estimated to be worth $4,598 million in 2022, with substantial growth projected over the next few years driven by rising adoption across aerospace, healthcare, automotive, and other industries. This suggests a significant total addressable market for DM.

Financial Performance:

1. Revenue and Profit: As a young company, DM is not yet profitable. As of Q4 2023, DM reported $4,214 million in annual revenue compared to just $2,936 million in the year prior. This shows substantial revenue growth even if their gross margins (32%) and operating margins (-42%) did not improve much over the prior year. As they scale and develop new technologies, profitability will likely be a focus to watch in the coming years.

2. Cash Flow and Balance Sheet: Cash flow from operations reached $23,416 million in Q4 2023, reflecting an improvement compared to the prior year due to strategic investments by partners in production and development. Despite the $3 billion in cash flow this past year, DM still holds negative shareholders' equity as it loses millions each quarter. To be sustainable in the long term, DM will need consistent revenue and even greater operational efficiency, especially due to the current losses on equity.

Dividends and Shareholder Returns:

DM is currently in a growth phase and does not pay dividends. Long-term shareholders have received negative returns of approximately -20.76% over the last 5 years while the S&P 500 has gained about 80.5% during that same time. This signifies a risk-filled investment but with the potential for large returns if 3D printing technology takes off in the manufacturing world.

Growth Trajectory:

Over the last 5 years, DM revenue growth has been substantial but also volatile. Despite the increase in total revenue in 2023, growth has slowed from its rapid increases in 2021 and 2022. Their future growth prospects will depend heavily on expanding its customer base, increasing production, improving margins, achieving profitability, and developing innovative new technologies.

Market Dynamics:

1. Industry Trends: The 3D printing market itself is expanding quickly with estimates showing approximately 25% year-over-year increases in metal additively manufacturing revenues from now through 2026. The need for shorter lead times, customized production, and faster innovation in various industries contributes to this trend for DM to capitalize on.
2. Market Position: DM’s strength in terms of market positioning comes from its unique technology stack and the variety of its offerings. With its DM Flex software, Studio System technology, and Production System for high-demand applications, DM caters to all levels of users while remaining adaptable to a changing global market.

Competitors:

• EOS Gmbh- Xometry Inc.
• Velo3D Inc. (VLD)
• Markforged Corporation (MKFG)
• 3D Systems Corp (DDD)
• Renishaw PLC
• ExOne Co. (XONE)
• Trumpf SE + Co. Kg
• SLM Solutions Group

Competitive Advantages: DM benefits from a large intellectual property library, which currently contains more than 250 active patents and numerous pending applications. While this intellectual property helps protect the production system it is also a competitive advantage over companies who DM may choose to partner with in the development of new applications or for the expansion of its business strategy.

Challenges and Opportunities:

1. Major Challenges:

• Competition: As the 3D printing market rapidly develops and consolidates, competition remains fierce for DM
• Technological Advancement: DM will need to stay at the forefront of technology in a field that can change rapidly and require large investments in intellectual property research and development.
• Operational Efficiency: To continue its revenue growth and justify its market valuation with investors, DM needs to demonstrate operational efficiency. Although it recently secured funding it will be important to be able to continue increasing revenue while reducing operating margins in order to gain investor confidence
• Scaling Production: Despite its technological and intellectual property lead, DM needs to be able to scale its production as it enters more large-scale industrial contracts to meet potential demand

2. Opportunities:

• New Markets: 3D printing as an industry still holds great promises for many different kinds of industries that have yet to integrate this new technology
• DM can look to expand its presence in existing markets where 3D printing is gaining market share. By focusing on these specific industries, it can become an integral partner and developer of solutions.
• Product Development/Innovation: As DM develops more product lines and solutions based on client demands and industry opportunities, growth can be substantially enhanced while maintaining strategic flexibility in their production systems through software upgrades which generate additional revenue for DM.
• M&A Activity: While this might provide challenges to DM in an increasingly competitive field, M&A activity may open up avenues for strategic partnership for more market domination and intellectual property advancements.

AI-Based Fundamental Rating:

5/10:

Despite its potential and technology-focused growth strategy, several risks remain for DM due to operational inefficiencies and a rapidly growing and consolidating market with immense competition.

Disclaimer:

• I was trained on text and code up to September 2021. However, I can access and process information from the real world by interacting with ChatGPT.
• This information is solely for educational purposes. It should not be considered investment advice in any way. All investment decisions should be made with the help of a professional and after conducting your due diligence and risk assessment before making financial decisions in the stock market.