Is the Desktop Metal share price a 3D printing bet after ExOne takeover?

Desktop Metal’s [DM] stock is essentially a play on the future of 3D printing. There are few publicly tradable companies in what is a pretty niche industry. And with Desktop Metal still in its growth phase and continuing to gobble up rivals, anyone with exposure to the space — not only Desktop Metal shareholders — will be watching news of the company’s acquisition of ExOne [XONE].

Desktop Metal has acquired ExOne in a deal worth $575m. Under the terms of the deal, ExOne shareholders will receive $8 in cash and $17 of Desktop Metal common stock for each share held, for a total consideration of $25.50 per share. According to Seeking Alpha, this implies a 47.6% premium on ExOne’s closing share price on 11 August.  

ExOne is a leader in binder jetting 3D printing, which, according to Ark invest, is an area in which 3D printing peers such as HP and Desktop Metal are focusing increasingly.

“We believe this acquisition will provide customers with more choice as we leverage our complementary technologies and go-to-market efforts to drive continued growth. This transaction is a big step in delivering on our vision of accelerating the adoption of additive manufacturing 2.0” - Desktop Metal founder Ric Fulop

“We believe this acquisition will provide customers with more choice as we leverage our complementary technologies and go-to-market efforts to drive continued growth. This transaction is a big step in delivering on our vision of accelerating the adoption of additive manufacturing 2.0,” said Desktop Metal founder and chief executive Ric Fulop (pictured).

The Desktop Metal share price experienced a slight bump but is now down over 23% following the announcement as shareholders digest the news. ExOne’s share price, on the other hand, popped over 44% the day after the deal was announced.

Is this a good deal for Desktop Metal’s stock?

Desktop Metal’s share price has been flagging this year. Over the past six months, it has dropped more than 75%, going from around $29 at the start of February to close 17 August at $7.18. ExOne’s share price has suffered a similar trajectory, only bouncing back after news of the acquisition — and shareholder payout.

News of the deal came during Desktop Metal’s disappointing second-quarter results, which saw the 3D printing company’s losses widen. Net loss came in at $43.2m, a sharp increase from the $23.8m loss from the same quarter last year. Net loss per share was $0.17, missing Wall Street expectations and down from the $0.15 seen last year.

Revenue, however, surged to $19m, a 767% increase on the same period last year, and up 67% from the previous quarter. As Desktop Metal is still in its growth phase, widening losses alongside growing revenues is par for the course. 

Having gone public last year via a SPAC, the company has made a string of acquisitions to expand its capabilities, including EnvisionTec and Beacon Bio. ExOne is just the latest example. How smoothly it manages to integrate these companies will play a major part in how much of the nascent 3D printing market it comes to dominate.

The 3D printing investment theme

As an investment theme, 3D printing has had a mixed time of it recently. In the Opto Theme Performance Screener, having fallen 2.23% in the week to 18 August, the 3D printing investment theme is up a slim 2.44% over the past month.

The big ETF covering the sector is Ark Invest’s 3D Printing ETF [PRNT], which is designed to track companies involved in the industry. Over the past six months, PRNT’s NAV has dropped from $47.17 to $37.27, as of 17 August.

ExOne is the biggest holding in the 3D Printing ETF, with the 1,129,296 shares held accounting for 5.09% of the overall fund and representing a market worth of almost $26m. The second-place holding is 3D Systems Corp, accounting for 4.76% of the fund, and Cellink AB is in third place, making up 4.32% of the fund.

“3D printing will be a key in the future manufacturing landscape thanks to the benefits that it can bring over injection moulding, machining, casting, or other conventional methods” - Anthony Schiavo, research director at Lux Research

In the second quarter, Ark Invest said the 3D Printing ETF underperformed compared to the wider market, describing ExOne as the “largest detractor” following the selloff in the 3D printing space. For the quarter ending 30 June, the 3D Printing ETF’s NAV grew 2.72%. While that beat the  3D Printing ETF’s 2.11% gain over the same time period, it was well below the S&P 500’s 8.55% surge.

Investors' appetites for growth stocks have waned this year and both Desktop Metal and ExOne’s fortunes this year reflect this. However, investors with a longer-term mindset could potentially scoop up a bargain. According to a report from Lux Research published in April, the value of 3D printed parts will increase at a 15% CAGR until 2030, with the market forecast to go from being worth $12bn in 2020 to $51bn in 2030.

“3D printing will be a key in the future manufacturing landscape thanks to the benefits that it can bring over injection moulding, machining, casting, or other conventional methods,” Anthony Schiavo, research director at Lux Research, said in a release.