SPACs begin to form small herds. First there was Velodyne and all of the LiDAR stocks that followed. Now, 3D printing metal materials are forming a clique. First Desktop Metal, then Markforged, and now Velo3D, a company we first came across in 2017. Back then they worked under the radar, and today they flaunt their assets in a shiny SPAC deck. Velo3D plans to merge with JAWS Spitfire Acquisition Corporation (SPFR). This makes Velo3D the third company for 3D printing metals to be listed on the stock exchange sespecially ppurpose aAcquisition cCompanies (SPAC).
About Velo3D Stock
The San Francisco startup Velo3D, founded in 2014, is fully committed $ 150 million With funding from names like Khosla and SpaceX, a company we just covered in our recent article on reusable missiles. They mention SpaceX a lot on their deck, and that’s because the fine print under “Risk Factors” says that a significant portion of Velo3D’s revenue is channeled through a single customer, SpaceX. It goes on to say:
Approximately 30% and 70% of revenue came from sales through SpaceX for fiscal years 2020 and 2019, respectively.
This is what these earnings look like:
Image credit: Velo3D
If you think Elon Musk is a tough boss, just think about how difficult it would be to be his salesman. The fact that Velo3D works so closely with SpaceX is a double-edged sword. It is seldom the case that we would ever invest in a company that generates a significant portion of the revenue from a single customer, and 30% is exactly on that threshold. It is good to see that this percentage decreases over time. Ideally, we want no more than 10% of sales to come from a single customer.
When perusing the Velo3D SPAC deck, there are various jewels of wisdom. Their technology is said to be “critical to the most efficient and challenging SpaceX engine”. Velo3D focuses on “high quality parts” and can produce them with a complexity that no other supplier can. Perhaps that is why they claim to have “the strongest intellectual property portfolio in metal additive manufacturing”. It’s not just about space material either. The deck states that each of the following four segments accounted for between 15 and 35% of 2020 sales. (We highlighted the customer names noted elsewhere on the deck.)
Photo credit: Velo3D Investor Deck
Velo3d has developed a full-stack solution – planning and construction software, a 3D metal printer and the associated quality control processes. Their 3D printing method – SupportFree Powder Bed Fusion – is superior to their competitors as they do not use supports during the printing process.
Image credit: Velo3D
Velo3D’s newest printer – the SapphireXC – will be available this year and will be able to print products that are 5 times bigger and 3 times cheaper. Around 80% of Velo3D’s 3D printer production is done by contract manufacturers – good because it creates a low-cost business, bad because you can’t control quality and don’t have a closed-loop production process to learn from.
For some additional information, see the deck about the “Quality Parts” competition. Here are the powder bed fusion companies they list with accompanying market shares for high quality parts:
- GIVE – 24%
- EOS – 19%
- SLM – 12%
- Renishaw – 9%
- Trump card – 7%
- 3D systems – 4%
- Velo3D – 3%
(Note that Desktop Metal is allegedly searching SLM for a possible acquisition.)
Lately, it has been hard to ignore how metal 3D printing is gaining ground in the aerospace industry. Let’s talk a little bit about it.
3D printing of metals in space
Three years after purchasing their first Velo3D 3D printer, SpaceX has now bought 22 of them. The head of additive manufacturing at SpaceX believes Velo3D is “at least five years ahead of any competition,” of which there are many. You may have noticed that 3D printing is increasingly being associated with space material. They have numerous aerospace companies printing 3D rocket engine components, and the world’s largest metal 3D printer prints entire rockets. They also have the most prestigious themed ETF company that supports 3D printing as a way to play in space.
ARK Invest’s long-awaited space ETF is like a Tinder-Date that is about 30 pounds overweight but drives an Aston Martin V12 manual. Maybe you have a good personality, too, and you can put the whole “big bones” thing behind you for a bit. But you know deep down that you don’t want to hold onto this for a period of time measured in decades.
The ARK Space Exploration & Innovation ETF (ARKX) doesn’t look like anyone imagined, but that’s a topic for another article (it looks like they’re using a similar approach to Morgan Stanley) but today we would like to point out how the second largest stake in ARK’s space ETF is ARK’s 3D printing ETF.
The 15 positions that make up two-thirds of ARK’s Space ETF – Credit: ARK
To this extent, they believe that “the 3D printing industry” contributes to the “space industry”. (In both cases we use quotes because they are not actual formal industry classifications either. This is why you will find so much disagreement about which stocks each stock belongs to.)
Buy or not buy
Finally, we find that SPACs have a certain rationality. If institutional investors hit a deal for $ 10 per share – the price most SPACs go public at – that is the price that retail investors should pay. Currently, you only pay a 3.2% premium on SPFR shares. Technically, you should be paying less than that amount as the deal hasn’t even closed. Not to mention, there is no guarantee that the SPAC was reasonably priced to begin with. That is why we avoid SPACs to a large extent and Velo3D gives us no temptations.
One of our readers recently asked a good question. If you buy shares in a SPAC before the deal is announced, or immediately after or at any time, does the owner of those shares have to do anything when the deal is closed? The answer is no. Assuming the deal is underway (we haven’t heard about it yet) the shares will automatically be converted into shares of the new company and the ticker will toggle automatically. In the case of the Velo3D SPAC, the ticker will switch from SPFR to VLD when the deal is closed (the deal is expected to occur in the second half of this year).
If a SPAC deal doesn’t go through, you’ll have to deduct fees and penalties from the cash pile, and the value of the stocks will reflect what’s left. It’s hard to see more than 20% being eaten up by bad business, which means you always have the downward “support” that acts as a hedge. Previously (six months ago) you could buy the SPAC stock before a deal was announced and then sell it to the wankers at Robinhood after just a few months for a quick + 70% premium. This is not a good idea now because the music stops.
With three metal 3D printing materials now available to retail investors, you can easily hold all three. We very much prefer to find and hold the lowest risk metal 3DP stock. We really like how Desktop Metal plans to consolidate metal additives manufacturing operations (and it did), and we’re also glad we decided to recoup the majority of our cost base when stocks rose to the moon. For now, we’ll be content with settling the dust and then comparing all three again when they have filed some proper filing with the SEC.
Would you like to see what three 3D printing materials we hold? To become something Nanalyze Premium annual member and find out today.