If you're following 3D Systems (NYSE: DDD ) , Stratasys (NASDAQ: SSYS ) , or other 3-D printing companies, you know that this space has been ripe with speculation. Within the last week, speculation that would be the mother lode of happenings, if it turns out to be true, hit the wires: Trip Chowdhry of Global Equities Research started releasing notes claiming that both Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) and Apple are developing "all-in-one" 3-D printers, according to a Barron's article.
I haven't put much stock in the rumor-mongering that's gone on in the 3-D printing realm. However, based on the information in the Barron's piece and my knowledge of Google, it seems possible that there could be something to this buzz. Additionally, Chowdhry's background, at least on the surface, does add some credibility to this story. Prior to starting his firm, he worked in information technology for quite some time, including a stint at Microsoft.
While I don't usually like to write about something where I have such little information, I decided an article was warranted. That's because I'd want to know about the possibility of tech titan Google entering the 3-D printing space if I were a 3D Systems or Stratasys shareholder. Besides, even if the Google rumor proves to be unfounded, we can use this opportunity to look at how competition in the consumer market might affect 3D Systems and Stratasys.
According to Barron's, Chowdhry wrote that Google is "secretly working on building the next generation of 3D All-in-One printer ecosystem based on -- Google Project Tango, integrating several Robotic technologies and Google Cloud; developers are speculating that Apple is also probably working on similar 3D All-in-One printer ecosystem centered around PrimeSense Technology, but information available on Apple is currently very scarce."
Barron's went on to say that Chowdhry believes that Google may show off something on this topic at its Google I/O conference, which is June 25 and June 26, and that he wrote that "Incumbents 3D systems, Stratasys and others may probably need to reinvent themselves for the consumer market."
The Barron's writer didn't know what Chowdhry was referring to by the term "3D All-in-One printer." While I can't be certain of how someone else is using a word, the term often refers to a 3-D scanner/3-D printer combination.
Let's examine the plausibility
Google entering the 3-D printing market seems plausible for a couple of reasons. First, the 3-D printing industry has been growing like gangbusters; according to the recently released Wohlers' Report 2014, the industry grew 34.9% in 2013, and is projected to grow more than 20% annually through 2021. This is a very attractive space, and it wouldn't likely be that difficult for a deep-pocketed and deep-tech-brained giant like Google to enter. Google is so big that it needs to keep entering new fast-growing spaces if it wants to keep growing its revenue at a solid pace.
Additionally, 3-D printing would seem to be a fit with Google's existing initiatives and apparent strategies. Google's acquisition earlier this year of Nest, which makes "smart" thermostats and smoke detectors, was considered by most to be the company's initial step in the battle to win the "smart house." This is likely one battle on Google's march toward its apparent goal of being a major player in the "Internet of Things," where various objects will be seamlessly connected, providing users with instant feedback. Anything that one can currently control wirelessly -- or potentially control wirelessly -- in the home is likely fair game for Google. A 3-D scanner/3-D printer falls into this category.
It seems conceivable that Google's Project Tango could somehow be involved in a 3-D printer initiative. Project Tango has created a prototype Android smartphone-like device that tracks the 3-D motion of the device, and creates a 3-D model of the environment around it.
How would 3D Systems and Stratasys be affected by the big G's entrance?
3D Systems and Stratasys are the only publicly traded companies that make 3-D printers for the consumer market.
3D Systems' consumer segment accounted for 6.6% of the company's total revenue in the first quarter of this year. Meanwhile, Stratasys' MakerBot unit, which it acquired in 2013, brought in 13.6% of the company's revenue in the same quarter. These percentages should increase, as these segments are growing much faster than each company's overall business. 3D Systems' total revenue grew 45% in the quarter, while revenue in its consumer business rocketed 150%; Stratasys' revenue jumped 54%, while MakerBot sales soared 75%.
At first glance, it would appear that Stratasys has potentially more to lose if Google or other companies successfully enter the consumer 3-D printing market. However, this isn't necessarily the case. MakerBot's products aren't only used by consumers and "prosumers" (professional consumers who use them in their small businesses), but also by companies. Ford, for instance, made news in late 2012 when it announced that it planned to put a MakerBot Replicator on every engineer's desk. We don't know how MakerBot's sales breakdown by customer type: consumers vs. businesses. If the breakdown is roughly 50-50, than Stratasys has about the same exposure to the consumer market as does 3D Systems.
Foolish final thoughts
It seems within reason that Google could enter the consumer 3-D printing space. Even if Google doesn't enter this market, there's little doubt that other large companies eventually will.
The margins in 3D Systems' consumer segment and Stratasys' MakerBot unit are lower than the companies' overall margins. When competition further heats up, these margins will shrink. Both companies, however, generate the lion's share of revenue -- and an even larger portion of profit share -- from their commercial and industrial offerings. While Google's entrance into the consumer 3-D printing business would likely hurt both companies, it wouldn't be catastrophic.
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