3D Systems (DDD 2.31%) stock is still having a great 2017, despite pulling back significantly since mid-May. The stock of the largest 3D printing company, by market cap, had been up more than 70% year to date at that time and is up 37% for the year through July 5. Rival Stratasys' (SSYS 0.96%) stock has printed a similar performance chart, rising more than 80% through May, before giving back half of its gains.
These big pullbacks aren't surprising. I've been cautioning 3D printing investors that while these companies have made solid progress starting last year in improving their financial results, most of these improvements have been from cost-cutting. Increasing efficiency is great, but it can only go so far, which is why I've opined that their financial results are unlikely to improve meaningfully until they have more success selling their enterprise 3D printers.
I'm not alone in holding this opinion, as I've seen it expressed by various Wall Street analysts who follow the two 3D printing bigwigs. Investors would be wise to monitor the revenue that both 3D Systems and Stratasys generate from 3D printer sales, though we're going to home in on just 3D Systems' numbers here.
Here's what you should know.
Image source: 3D Systems.
Why 3D printer sales are more crucial than the numbers suggest
In addition to selling 3D printers, both 3D Systems and Stratasys have sizable 3D printing service operations, which primarily provide on-demand 3D printing services. They both also sell proprietary printing materials, or "consumables," for their 3D printers, and 3D printing software, which they group together with 3D printer sales in their "product" sales category.
In the first quarter of 2016, 3D Systems generated $156.4 million in total revenue -- $94.7 million, or 60.5%, from products; and $61.7 million, or 39.5%, from services.
The company's 3D printer sales, which comprise the bulk of the product sales, are even more crucial than those numbers suggest. That's because 3D Systems, along with Stratasys, employs a razor-and-blade-like business model, where 3D printers are the "razors" and printing materials are the "blades." The goal of a razor-and-blade strategy is to sell as many razors as possible to generate sales of the higher-profit-margin blades over the life of the razor. In other words, a one-time sale of a 3D printer creates a nearly automatic lucrative revenue stream for the company for many years to come, assuming the customer is using the printer.
With this in mind, let's take a look at 3D Systems' more recent 3D printer sales.
3D Systems' recent 3D printer sales history
|
Metric |
Q1 2017 |
Q4 2016 |
Q3 2016 |
Q2 2016 | Q1 2016 |
|---|---|---|---|---|---|
|
Change in revenue from 3D printer sales (YOY) |
(4%) |
Not provided |
(6%) |
(30%) | (24%) |
Data source: 3D Systems. YOY = year over year.
3D Systems' quarterly revenue generated from sales of its 3D printers has been declining on a year-over-year basis. The good news, however, is that the biggest declines seem to be behind the company.
Investors should closely follow this number. 3D Systems probably won't make a meaningful turnaround until we see this number start to rebound -- we want to see year-over-year growth.
