Wohlers Associates just released its annual report on additive manufacturing, better known as 3-D printing. This publication is widely considered the gold standard on the industry, as Terry Wohlers is the leading authority on 3-D printing. He has specialized in this industry since its early days in the mid-1980s, and the 2014 report marks the 19th consecutive year of its availability.
Defining our terms
Before we move into the good stuff, it's important to know that Wohlers considers the global "3-D printing industry" to include products, such as printers and materials, as well as services. The service category primarily involves on-demand 3-D printing provided by service bureaus. Naturally, Wohlers' numbers don't include the wide range of new products that 3-D printing has made possible, so investors should keep in mind that these figures will always underestimate the impact of this technology on our economy.
The 3-D printing industry growth rate has been accelerating
The global 3-D printing industry grew 34.9% in 2013, which is the highest annual growth rate in 17 years. Over the last 26 years -- which is essentially the life of the industry -- revenue has grown an average of 27% annually, while the compounded annual growth rate for the past three years (2011-2013) was 32.3%.
As base numbers get larger, it becomes more difficult to show the same percentage growth. So it seems a very bullish sign for the industry that the growth rate accelerated in 2013 over both the long-term and short-term average rates. Here's a look at growth rates over the last five years:
The dip in 2009 was the result of the deep global recession.
Now here's the total size of the industry for the same period:
Fuel for growth: 3-D printers to produce parts and sub-$5,000 printers
Wohlers believes the industry will continue to experience strong growth over the next several years, and this growth will be "fueled by sales of "personal" 3-D printers that cost less than $5,000, as well as the expanded use of the technology for the production of parts, especially metal, that go into final products."
That last part shouldn't come as a surprise to Foolish readers, as several of us at the Fool have been harping on this point for a while. In a previous article, my takeaway was: "Demand for 3-D printers that have metals capabilities will likely grow at a faster rate than the overall 3-D printing sector, as 3-D printing makes increasing inroads into manufacturing applications."
Final part production accounted for 28.3% of the $2.2 billion spent in 2012 on 3-D printing products and services worldwide, according to Wohlers Report 2013. This percentage surely rose last year, though that information hasn't been made public.
As to investment opportunities, all five pure plays offer printers for the industrial space. More specifically, Arcam and ExOne exclusively focus on the industrial market, while 3D Systems and Stratasys offer a wide range of industrial, commercial, and consumer printers. Voxeljet's portfolio is slanted heavily toward the commercial space, I believe, though it also serves the industrial market. 3D Systems, Arcam, and ExOne offer systems that can print in metals, while Stratasys and voxeljet do not. However, it's important to note that Stratasys will soon start making money from the metals 3-D printing space, even though it doesn't sell printers with metal capabilities. This is because Stratasys recently announced that it was acquiring two service bureaus, including Solid Concepts, which is the largest independent service bureau in North America, and both of these companies offer metal 3-D printing services.
Wohlers is likely right about sub-$5,000 printers being one of the segments that will drive the industry's growth over the next few years. That said, the demand for these printers is likely to come mostly from the "prosumer" (professional consumers who use the printers in their small businesses), and even commercial markets, rather than the consumer market, in my opinion. It seems that we're quite a while away from reaching the tipping point for consumer adoption of 3-D printers. The big money will continue to be made in the industrial and commercials markets, so that's where investors should continue to focus.
Why 3-D printing is likely to leave Wohlers' growth projections in the dust
I saved the best for last, and while this isn't going to rhyme like the '90s hit tune, it should be music to investors' ears: the 3-D printing industry is likely to grow considerably faster than Wohlers' estimates. This has been my opinion for a while, as you can't help but cover this space and marvel at the unique and surely unpredictable uses that continuously pop up. Now I have some great support for this opinion: Wohlers' own previous projections.
After reading Wohlers' just-released snapshot of the industry, I went through the assessments for the last few years. These snippets include several key highlights that the firm makes public each year when it announces that its annual report is available. I found that Wohlers' recent projections have proven to be extremely conservative, which lead me to believe the current projections will also prove to be considerably too low. This conclusion isn't a sure thing, of course, and it isn't a knock on Wohlers; when a revolutionary new technology takes hold, it's surely not possible for any expert to foresee all of its potential future uses.
The following chart shows the Wohlers' oft-quoted projections that many of you have likely read during the last year. Alternatively, you may have read the number for 2021 expressed as a compounded annual growth rate -- it's about 20%.
Now look at Wohlers' projections that were made just two years prior to the projections in the chart above.
Let me remind you of Wohlers' 2013 number in the second chart -- $3.07 billion. So, the 3-D printing industry reached Wohlers' projection for 2016 in 2013! Granted, Wohlers significantly increased its projections last year, but it still seems to me that it will continue to prove to be too low.
One main reason why this matters, of course, is that Wall Street analysts are surely basing their future growth projections for 3D Systems, Stratasys, and the other major 3-D printing players on Wohlers' industry growth numbers. So, if Wohlers' numbers prove very conservative, it follows that analysts' growth estimates for select 3-D printing companies will also likely turn out to be too low.
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