Why Stratasys Earnings Sent Shares Skyward

Shares of 3-D printing specialist Stratasys (NASDAQ: SSYS  ) jumped by as much as 13% in Monday's trading after the company reported its fourth-quarter and full-year 2012 earnings.

So why the optimism?

The numbers
For the year, revenue rose 30% to $359 million with non-GAAP net income of $59.6 million, or $1.49 per share. Non-GAAP gross margins also improved to 58% from 56.5% in 2011.

For the quarter, Stratasys reported that non-GAAP net income grew 40% from the year-ago period to $0.40 per share, beating analysts' estimates, which called for earnings of $0.38 per share. Revenue in the fourth quarter also grew 23% year over year to $96.4 million, seemingly crushing analyst estimates for revenue of $52.8 million. However, it's important to note this report is the first to incorporate revenue from Stratasys' 2012 merger with industry competitor Object.

On that note, however, according to the income statement in Stratasys' press release this morning, net sales increased to $71.2 million for the quarter. While we've reached out for clarification (since the press release doesn't explicitly state this number represents pre-merger sales from Stratasys alone), if this is indeed the case it means that Stratasys' year-over-year sales rose an even more impressive 63%, besting even the 53% revenue growth over 2011 posted by competitor 3D Systems (NYSE: DDD  ) just last week. In short, then, Objet's slower growth actually tempered the combined companies' results. Now that the merger is complete, however, Stratasys is also looking forward to leveraging its new combined "global network of more than 260 resellers and independent sales agents that sell Stratasys products and services worldwide."

As a result, Stratasys was comfortable providing solid 2013 guidance for revenue and non-GAAP earnings per share of $430 million-$445 million, representing growth from 20% to 24% over 2012. In addition, Stratasys expects non-GAAP earnings per share between $1.90 and $1.95, or growth over 2012 from 27% to 31%. 

Elsewhere in 3-D printing land...
Curiously enough, while newcomer ExOne (NASDAQ: XONE  )  also found itself trading up nearly 7% Monday -- thanks largely to analyst activity including a new buy rating from FBR Capital and an upgrade from BB&T -- 3D Systems' sub-par results from last week seem to have kept a lid on its stock, which is down more than 2% as of this writing. Even so, that doesn't mean 3D Systems won't also prove a great investment over the long haul, but rather that its already crazy growth rates of day's past won't be quite as absurd going forward.

With this in mind, I firmly believe there's plenty of money to be made for 3-D printing companies who choose to dip their additive manufacturing toes into the consumer market pool. On one hand, as it stands with the consumer 3-D printing market still in its infancy, ExOne is content to focus nearly all its energy on its industrial printers. And while Stratasys, on the other hand, does have a multitude of professional partners outside the industrial space, it offers little in the way of relatively affordable consumer solutions.

Meanwhile, as I wrote last month, other competitors like 3D Systems and privately owned MakerBot are placing big bets on the huge potential for consumers to adopt 3-D printing, with both companies increasingly honing their focus on developing lower-cost 3-D printing solutions for our homes. In fact, considering the growth of its at-home Cube printers, 3D Systems management stated during the company's most recent earnings conference call they now "expect material revenue contributions from consumer's solutions ... in the second half of [2013]."

To its credit, however, Stratasys still plans to spend a significant chunk of its revenue on R&D in 2013, and the company did launch its new "Scholar" 3-D printer in the fourth quarter -- "an accessible and highly affordable PolyJet 3D printer package for academia." While we can be fairly sure this is part of a greater effort to give future engineers an earlier look at its professional solutions, it's at least a step in the right direction toward demonstrating Stratasys' ability to create a more widely accessible solution should it wish to enter the consumer market in earnest down the road.

Now what?
In any case, putting short-term, company-specific fluctuations aside, it's safe to say the 3-D printing industry is here to stay. Given its massive potential to change our lives for the better, I'm convinced long-term investors would be wise to consider adding at least one of the aforementioned companies to their portfolio.

More expert advice from The Motley Fool
3D Systems is at the leading edge of a disruptive technological revolution, with the broadest portfolio of 3-D printers in the industry. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today the company sports a dizzying valuation. To help investors decide whether the future of additive manufacturing is bright enough to justify the lofty price tag on the company's shares, The Motley Fool has compiled a premium research report on whether 3D Systems is a buy right now. In our report, we take a close look at 3D Systems' opportunities, risks, and critical factors for growth. You'll also find reasons to buy or sell, and receive a full year of analyst updates with the report. To start reading, simply click here now for instant access.


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  • Report this Comment On March 05, 2013, at 10:33 AM, TMFSymington wrote:

    *Update: SSYS Investor Relations responded to our request for clarification to say the lower revenue number ($71.2 million) actually represents a full quarter from Stratasys combined with a partial quarter from Objet (from the time the merger closed until the end of the quarter).

    In short, while this means Stratasys' pre-merger organic growth wasn't 63%, it also shows Objet hasn't necessarily slowed overall growth for the combined company.

    Fool on!

    Steve

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