3D Systems Corporation Earnings: Has the 3-D Bubble Popped?

On Tuesday, 3D Systems (NYSE: DDD  ) will release its quarterly report, and investors have endured a gut-wrenching plunge in the stock price that has lopped off nearly half of its value since the beginning of the year. Rivals Stratasys (NASDAQ: SSYS  ) and ExOne (NASDAQ: XONE  ) also seen substantial declines, raising the question of whether the entire 3-D printing industry got itself into bubble territory or whether 3D Systems now offers bold investors a chance to buy shares at what in hindsight will be a bargain price.

New industries always go through growing pains, and the volatility in the share prices of 3D Systems, Stratasys, ExOne, and their peers is consistent with the difficulty investors have in evaluating the prospects of their respective businesses. With so much of their potential far in the future, the smallest of setbacks now can have ripple effects years down the road that can dramatically affect the value of their businesses. The main question 3D Systems faces is whether it can keep growing fast enough to build up a first-mover advantage that will defend its turf against future entrants to the space. Let's take an early look at what's been happening with 3D Systems over the past quarter and what we're likely to see in its report.


Source: 3D Systems.

Stats on 3D Systems

Analyst EPS Estimate

$0.15

Change From Year-Ago EPS

(29%)

Revenue Estimate

$145.5 million

Change From Year-Ago Revenue

43%

Earnings Beats in Past 4 Quarters

0

Source: Yahoo! Finance.

Will 3D Systems earnings surprise investors?
Analysts have gotten increasingly downbeat about 3D Systems earnings in recent months, chopping first-quarter estimates by more than a dime per share and cutting their projections for the full 2014 and 2015 fiscal years by about a third. The stock has suffered the consequences, plunging 44% since late January.

There's no doubt that 3D Systems has continued to see impressive growth in its core business. In its fourth-quarter results, 3D Systems showed revenue growth of 52% compared to the year-ago quarter, and even after factoring in acquisitions, organic sales growth soared 34%. Yet investors paid close attention to CEO Avi Reichental's discussion of how even those growth rates were slower than 3D Systems wanted to see, and they seemed dissatisfied with 2014 revenue guidance for 30% organic growth, especially in light of the fact that 3D Systems had issued discouraging preliminary results earlier in the month.

Source: 3D Systems.

One of 3D Systems' biggest challenges is figuring out which 3-D printing niche to focus its efforts on. Consumer-printer sales have grown the most, but 3D Systems had even higher expectations for consumer sales than the market delivered. Meanwhile, health-care applications and metal printing have done better than 3D Systems projected, and with Stratasys, ExOne, and most other players having a substantial presence on the industrial-printing side of the business, 3D Systems needs to make a strategic decision about whether it wants to remain a 3-D printing generalist or drill down on particular applications.

But the bigger long-term threat to 3D Systems will come from competitors that don't even exist yet. Governments and sovereign wealth funds have seen the potential of 3-D printing, and especially in Asia, countries with huge interest in manufacturing like China and Singapore have announced investments toward boosting 3-D printing technology and expertise. That explains the urgency that 3D Systems, Stratasys, and other U.S.-based companies have in growing as quickly as possible, as government support for overseas rivals could leave them fighting an uphill battle if they can't get as big a lead as possible over their future competition.

Moreover, 3D Systems shareholders need to be prepared for the impact of general market turbulence on the stock's price. High-growth stocks like 3D Systems always move more violently than the overall market, and lately, traders have targeted momentum stocks like 3D Systems as having risen too far too fast. In addition, if a company decides it needs to raise capital to grow further, then dilution from secondary offerings have sent many 3-D printing stocks into short-term tailspins.

In the 3D Systems earnings report, watch to see not just what the growth numbers look like but also what strategy 3D Systems intends to follow in order to bolster growth further. Long-term investors must focus more on fundamentals than on share-price volatility, but 3D Systems needs to show how it can cash in on the potential of proprietary printing-material sales and new applications in order to help the stock bounce back.

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Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 27, 2014, at 5:24 PM, uyutnaya wrote:

    Not long ago The Motley Fool was adoring DDD, and now a mediocre assumptions are welcome? You may loose subscribers...

  • Report this Comment On April 28, 2014, at 9:50 AM, sixalis wrote:

    I would like to know what MF recommends at this time (today). Sell or buy DDD?

  • Report this Comment On April 28, 2014, at 10:30 AM, bdfw wrote:

    What is MF response to uyutnaya re your high enthusiasm re DDD?

    bdfw

  • Report this Comment On April 29, 2014, at 5:49 PM, SkyRainger wrote:

    If you invest based on MF recommendations you are better off finding a mutual fund to grow your money. MF has their own funds now. The real competitor to DDD, XONE, SSYS, VJET... is HP. Don't laugh but they are throwing a lot of $ at R&D for 3D printing. Why shouldn't they given their market share of 2D printers. Many 3D patents will begin to expire allowing HP to enter this market fairly quickly. There are many small companies that are developing niche 3D printers and with Asian countries jumping in competition is starting to heat up and only the strong (innovation, money, supply and distro channels) will survive. HP has already made announcements that they can fix the slow productivity ratio, they're a R&D machine with billions in cash and probably they're strongest asset is their supply and distribution channels. HP scares me I only hope they buy into the market vs. crushing the market.

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