Xometry (XMTR) Q2 2025: Marketplace Gross Margin Surges 190bps as AI Drives Share Gains
Xometry’s AI-driven marketplace delivered record gross margin and operating leverage, outpacing a stagnant manufacturing market. Ongoing product innovation, deepening enterprise traction, and prudent capital allocation signal a durable growth trajectory even as macro caution tempers guidance. Investors should watch for further margin expansion and enterprise wallet share gains as digital adoption accelerates.
Summary
- AI Marketplace Margin Expansion: Xometry’s AI-powered pricing and sourcing algorithms drove record gross margin and improved operating leverage.
- Enterprise and International Outperformance: Large account adoption and 31% international growth highlight the platform’s extensibility across geographies and verticals.
- Balanced Growth and Caution: Management raised full-year outlook but remains conservative on macro, embedding no end-market recovery in guidance.
Performance Analysis
Xometry’s Q2 results underscored the power of its asset-light marketplace model, with revenue up sharply year over year and gross profit growth outpacing the top line. Marketplace revenue comprised over 90% of total revenue, increasing at a robust pace as both active buyers and average spend per buyer climbed, particularly among enterprise accounts. Supplier services, a smaller segment focused on advertising and digital marketing for manufacturers, remained stable sequentially but is expected to contract modestly for the full year as the company prioritizes higher-margin marketplace activity.
Gross margin performance was a standout, with marketplace gross margin expanding 190 basis points year over year to a record level, reflecting the impact of continuous improvements in AI-driven pricing and supplier selection. This margin expansion, alongside disciplined operating expense growth—well below revenue growth rates—drove a meaningful swing to positive adjusted EBITDA and incremental margin well above management’s long-term targets. International growth accelerated, supported by new product launches and deeper enterprise engagement, while U.S. marketplace revenue continued to grow at a healthy clip despite muted industry conditions.
- Marketplace Leverage: Operating expense growth trailed revenue, driving significant EBITDA improvement and demonstrating scalability in the model.
- Enterprise Account Growth: Accounts with $50,000 or more in annual spend rose 15%, with strong net adds and deeper integration via Teamspace and ERP solutions.
- Supplier Services Stabilization: Advertising and marketing services revenue remained steady, with product upgrades planned to reignite growth later in the year.
Xometry’s ability to deliver record results in a persistently soft macro environment signals both market share gains and the growing adoption of digital sourcing in custom manufacturing.
Executive Commentary
"Expanding marketplace gross margin underscores the value we're creating with our AI powered marketplace. Our efficacy and competitive mode continues to increase as we grow our networks of buyers and suppliers and gain more data to continuously train our algorithms."
Randy Altshuler, Chief Executive Officer
"As we scale towards $1 billion of revenue, we expect to deliver improving profitability, even as we continue to invest in our growth initiatives...Q2 demonstrates the ability of our AI-powered marketplace to deliver strong revenue and gross profit growth and operating leverage as we remain disciplined in our execution."
James Milne, Chief Financial Officer
Strategic Positioning
1. AI as Competitive Moat
Xometry’s core differentiator is its proprietary AI-powered pricing and supplier selection engine, which continuously ingests marketplace data to optimize matching, pricing, and fulfillment. This not only drives higher gross margin but also enables rapid scaling across new manufacturing processes, materials, and geographies. AI-driven automation is central to reducing buyer friction and expanding both sides of the marketplace.
2. Deepening Enterprise Penetration
The company’s “land and expand” strategy is gaining traction, with more large accounts integrating Xometry’s Teamspace, a cloud-based collaboration tool, and ERP (enterprise resource planning) integrations. These solutions increase wallet share and embed Xometry deeper into customer procurement workflows, making the platform sticky and expanding long-term revenue potential from each enterprise relationship.
3. Global Expansion and Product Velocity
International revenue grew 31% year over year, driven by new product launches in Europe and ongoing localization. The launch of Teamspace in Europe, UK, and Turkey, along with procurement platform integrations, is enabling Xometry to tap into large, underpenetrated markets. Product velocity remains high, with new mobile supplier tools, instant quoting for additional materials, and AI-powered drawing extraction all rolled out or tested in recent months.
4. Asset-Light Model and Financial Flexibility
Xometry’s asset-light marketplace structure enables efficient scaling with limited capital intensity, as evidenced by low CapEx and strong cash reserves. The recent convertible debt refinancing extends maturities and lowers dilution risk, providing ample flexibility to continue investing in technology and international expansion while maintaining a strong balance sheet.
5. Resiliency in Volatile Macro Environment
Despite manufacturing indices remaining below 50 for over two years, Xometry continues to post double-digit growth, highlighting both market share gains and the secular shift toward digital sourcing. The platform’s flexibility—across domestic and international suppliers—positions it as a strategic partner for customers navigating tariff volatility and supply chain disruptions.
Key Considerations
Xometry’s Q2 performance highlights a business gaining share through technology leadership and operational discipline, but investors should weigh both the opportunities and the embedded risks as the company scales.
Key Considerations:
- AI-Driven Margin Expansion: Ongoing improvements in pricing and supplier selection algorithms are driving sustainable gross margin gains, but continued investment and execution are required to maintain this edge.
- Enterprise Account Scaling: Deeper integration with large customers is increasing wallet share and stickiness, but execution risk remains as Xometry pushes further into complex enterprise workflows.
- International Growth Acceleration: Early success in Europe and other international markets is promising, but localization and competitive dynamics could impact scalability and margin profile.
- Supplier Services Transition: The supplier advertising business is stabilizing, with product upgrades targeted for later in the year; success here could unlock incremental margin and engagement.
Risks
Macro uncertainty persists, with management embedding no end-market recovery in guidance and cautioning that manufacturing indices remain depressed. Execution risk around enterprise integration, international expansion, and ongoing AI development could impact growth and margin trajectory if not managed carefully. Competitive threats from traditional and emerging digital sourcing platforms remain, particularly as Xometry expands into new geographies and verticals.
Forward Outlook
For Q3 2025, Xometry guided to:
- Revenue of $167 to $169 million (18% to 19% YoY growth)
- Marketplace growth of 20% to 22% YoY
- Adjusted EBITDA of $4 to $5 million
For full-year 2025, management raised guidance:
- Marketplace growth of 23% to 24% (up from at least 22%)
- Overall revenue growth of at least 20%
- Incremental adjusted EBITDA margin of approximately 21%
Management emphasized continued strong trends in Q3, ongoing investment in AI and product innovation, and a disciplined approach to operating leverage and capital allocation.
- Guidance assumes no improvement in macro environment or manufacturing indices
- CapEx expected to remain at $7 million per quarter
Takeaways
Xometry is emerging as a digital leader in custom manufacturing, leveraging AI and software to drive marketplace margin and share gains despite a weak macro backdrop.
- Margin Expansion: AI-driven improvements are expanding gross margin and operating leverage, positioning the business for scalable, profitable growth.
- Enterprise and International Growth: Deepening integration with large accounts and rapid international expansion are building durable revenue streams.
- Execution Watchpoint: Investors should monitor progress on supplier services upgrades and the pace of large account adoption as key drivers for sustained outperformance.
Conclusion
Xometry’s Q2 results highlight the resilience and scalability of its AI-powered marketplace, with record gross margin, accelerating enterprise traction, and prudent capital management. While macro conditions remain a headwind, the company’s execution and product velocity position it for continued share gains and margin expansion in the quarters ahead.
Industry Read-Through
Xometry’s outperformance in a persistently soft manufacturing environment is a clear signal that digital platforms are gaining share from legacy procurement channels. The company’s success with AI-powered pricing and supply chain resiliency tools points to a broader shift in industrial sourcing toward data-driven, asset-light models. Traditional manufacturing and procurement businesses face increasing pressure to digitize, while competitors in B2B marketplaces must accelerate AI adoption to keep pace. Rapid enterprise adoption of digital sourcing platforms is likely to reshape supply chain management and procurement standards industry-wide.