Stratasys (NASDAQ: SSYS ) told investors during its fourth-quarter earnings call that, including acquisitions, it has sold more than 75,000 3-D printers since its inception, representing the largest installed base, or market share, of 3-D printers in the world. While this is certainly an encouraging metric that points to a steady stream of recurring revenues from consumable material sales in the future, it doesn't necessarily translate to Stratasys commanding the largest revenue share in the industry. 3D Systems (NYSE: DDD ) already controls more of the 3-D printing industry's revenue than Stratasys and that isn't expected to change anytime soon.
Breaking it down
In 2012, the worldwide 3-D printing industry generated $2.2 billion in revenues, of which Stratasys contributed $215.2 million and 3D Systems contributed $353.6 million. Using a combination of industry, company, and analyst metrics, we can get an idea of how much revenue share each company is expected to control in 2015.
In 2015, the 3-D printing industry is expected to generate $4 billion in revenue, of which 3D Systems expects to generate more than $1 billion in sales, and analysts expect Stratasys to generate about $842 million in full-year sales. Although Stratasys is expected to close the revenue gap between itself and 3D Systems by 2% by the end of 2015, it continues to suggest that the largest installed base of printers doesn't always translate to a greatest share of revenues. This likely has to do with the fact that more than 44,000 of Stratasys' 75,000 3-D printers in circulation are low-cost MakerBot 3-D printers, which don't generate nearly as much recurring revenue as higher end professional and industrial printers.
Down the road, it's entirely possible that 3D Systems will control more of the industry's profits than Stratasys even if 3D Systems technically has a smaller market share. Considering that 3D Systems closed out 2013 with a stronger 52.1% gross profit margin versus Stratasys' 46.7%, it seems downright realistic.
This sounds a lot like how Google dominates Apple in terms of mobile market share with its open source Android operating system, but Apple ends up controlling the majority of the mobile industry's profits, signifying that Apple's offerings are significantly more valuable on a per unit basis. Applying the same logic to 3D Systems and Stratasys, 3D Systems has a more valuable portfolio on a per printer basis despite technically having lower market saturation. It'd be hard to argue against this logic because 3D Systems has seven different types of sophisticated 3-D printing technologies, covering a wider range of professional and industrial applications than Stratasys could ever dream of.
A more relevant measure
Instead of focusing on market share in the years ahead, 3-D printing investors should focus on revenue share to gauge a company's long-term-profitability prospects. The company that can gain the greatest revenue share is likely going to have the easiest time converting that revenue into more profit over the long term. With 3D Systems expected to outpace Stratasys in terms of revenue share in the years ahead, 3D Systems seems like the better horse to bet on.
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