SPACs are starting to form small herds. First there was Velodyne and all the LiDAR stocks that followed it. Now 3D printing metal stocks are forming a clique. First Desktop Metal, then Markforged, and now Velo3D, a company we first came across back in 2017. Back then, they were operating under the radar, and today, they’re flaunting their assets in a glossy SPAC deck. Velo3D plans to merge with JAWS Spitfire Acquisition Corporation (SPFR) making it the third 3D printing metals company that’s gone public using a special purpose acquisition company (SPAC).
About Velo3D Stock
Founded in 2014, San Francisco startup Velo3D has taken in around $150 million in funding from names that include Khosla and SpaceX, a company we just covered in our recent piece on reusable rockets. They mention SpaceX a lot in their deck, and that’s because the fine print found under “Risk Factors” tells us that a substantial portion of Velo3D’s revenue is processed through a single customer, SpaceX. It goes on to say:
Approximately 30% and 70% of its revenue was derived from sales through SpaceX for the fiscal years 2020 and 2019, respectively.
Here’s what those revenues look like:
If you think Elon Musk would be a harsh boss to have, just think about how difficult being his vendor would be. The fact that Velo3D is working so closely with SpaceX is a double-edged sword. Rare is the case we would ever invest in a company that derived a sizable chunk of revenues from a single customer, and 30% sits right on that threshold. It’s good to see that percentage declining over time. Ideally, we’d like to see no more than 10% of revenues coming from a single customer.
In perusing Velo3D’s SPAC deck, there are various gems of wisdom to be found. Their technology is said to be “critical for SpaceX’s most efficient and challenging engine.” Velo3D is focused on “high value parts” and can produce them at a complexity that no other vendor can. Maybe that’s why they claim to have “the strongest intellectual property portfolio in metal additive manufacturing.” They’re not just about space stuff either. The deck says that each of the below four segments contributed between 15-35% of 2020 revenues. (We highlighted the customer names that were noted elsewhere in the deck.)
Velo3d has developed a full-stack solution – planning and design software, a metal 3D printer, and the quality control processes to go with it. Their method of 3D printing – SupportFree Powder Bed Fusion – is superior to their competitors because they don’t use supports during the print process.
Velo3D’s latest printer – the SapphireXC – will be available this year and able to print products that are 5X larger and 3X lower cost. Around 80% of Velo3D’s 3D printer production is performed by contract manufacturers – good because it creates an asset-light business, bad because you can’t control quality and you don’t have a closed-loop production process you can learn from.
Some additional information can be found in the deck about competition in the “high value parts” space. Here are the powder bed fusion companies they list with accompanying market shares for high value parts:
- GE – 24%
- EOS – 19%
- SLM – 12%
- Renishaw – 9%
- Trumpf – 7%
- 3D Systems – 4%
- Velo3D – 3%
(Note that Desktop Metal was rumored to be looking at SLM for a possible acquisition.)
Lately, it’s been hard to ignore how metal 3D printing is taking hold in the space industry. Let’s talk about that a bit.
3D Printing Metals in Space
Three years after the purchase of their first Velo3D 3D printer, SpaceX has now purchased 22 of them. The Head of Additive Manufacturing over at SpaceX thinks that Velo3D is “at least five years ahead of any competition,” of which there is plenty. You may have noticed that 3D printing is becoming increasingly associated with space stuff. You’ve got numerous space companies 3D printing rocket engine components, and the world’s largest metal 3D printer is printing entire rockets. You also have the most renowned thematic ETF firm backing up 3D printing as a way to play space.
ARK Invest’s long awaited space ETF is like a Tinder date that shows up about 30 pounds overweight but driving an Aston Martin V12 manual. Maybe they also have a good personality, and you can get past the whole “I just have big bones” thing for a bit. But you know deep down inside that this isn’t something you want to hold onto for a time period measured in decades.
The ARK Space Exploration & Innovation ETF (ARKX) looks nothing like anyone imagined, but that’s a topic for another article (looks like they’re using a similar approach to what Morgan Stanley did), but today we want to point out how the second largest holding in ARK’s space ETF is actually ARK’s 3D printing ETF.
That’s the extent to which they believe that “the 3D printing industry” is contributing to “the space industry.” (We’re using quotes in both cases because neither are actual formal industry classifications, which is why you’ll see so much disagreement about what stocks belong in each.)
To Buy or Not to Buy
Finally, we’re starting to see some rationality on exhibit from SPACs. If institutional investors are doing a deal around $10 a share – the price most SPACs go public at – then that’s the price retail investors should pay. Right now, you’ll only pay a 3.2% premium for shares of SPFR. Technically, you should pay less than that amount because the deal hasn’t even gone through. Not to mention, there’s no guarantee the SPAC was fairly priced to begin with. That’s why we’re largely avoiding SPACs and Velo3D gives us no temptations.
One of our readers recently asked a good question. If you buy shares of a SPAC before the deal is announced, or immediately after, or anytime thereof, does the owner of those shares need to do anything when the deal goes through? The answer is no. Provided the deal goes through (we haven’t heard of one that hasn’t), then the shares will automatically convert to shares of the new company and the ticker will automatically change over. In the case of the Velo3D SPAC, the ticker will change from SPFR to VLD when the deal closes (it’s expected to close in the second half of this year).
If a SPAC deal doesn’t go through, you’ll need to subtract fees and penalties from the pile of cash and the value of the shares will reflect what’s left. It’s hard to see more than 20% eaten up by a bad deal which means you’ll always have the downside “support” which acts as a hedge. Back in the olden days (six months ago), you could buy a SPAC’s shares before a deal was announced, then sell them to the wankers over at Robinhood for a quick +70% premium after just a few months. That’s not a good idea now because the music is stopping.
With three metal 3D printing stocks available now for retail investors, you could easily hold all three. We much prefer to try and find the metal 3DP stock with the least amount of risk and hold that. We really like how Desktop Metal plans to consolidate the metal additive manufacturing space (and they have been), and we’re also glad we decided to recoup the majority of our cost basis when shares soared to the moon. For now, we’re content with letting the dust settle and then taking another comparative look at all three when they’ve filed some proper documents with the SEC.
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