A decade ago, 3D printing seemed like the future of design and manufacturing. With relatively common software, anyone could build a 3D printed model, opening up seemingly endless applications for everyone from hobbyists and educators to high-end manufacturers.
But the 3D printing market didn't turn out to be very lucrative for 3D printing companies themselves. Losses have mounted and stocks have been crushed, including that of 3D Systems (DDD -5.23%), which is one of the industry leaders. So is now the time to scoop up the stock, or has this contender fallen short?
A bleak financial picture
You can see the financial struggles 3D Systems has had below. Revenue is now declining and net losses are continuing. There are a number of reasons for this, but the two big drivers are the lack of scale for 3D printing overall, and trouble the company has had turning its materials business into a high-margin recurring revenue business, a la razors (low margin) and blades (high margin).
In 2019, which doesn't include any impact from COVID-19, the company reported a 5.4% decline in services revenue, which should be where the company is growing most as it tries to sell more services rather than just printers to customers. Healthcare solutions, on-demand services, and software sales all fell in 2019, which aren't good signs.
It's possible these trends could change, but right now I think 3D printers, materials, and services are largely considered commodities. Sure, there are some high-end, high-value printing applications, but they're few and far between, and won't drive the scale 3D Systems needs long-term.
Where the value is for 3D printing
To understand why I think 3D printing companies will struggle long-term, I think we need to look at the process of printing a 3D part. The first step is to build a model, likely using computer-aided design (CAD) software that's made by a company like Autodesk (ADSK -1.40%). From there, you can print on any number of 3D printers using name-brand materials, or some generic materials will work as well.
You can see the problem here: The value and scale really lie in the CAD software. That's where customers can be locked in by a system, and entire industries end up getting built around one company, like architecture is with Autodesk. Any 3D printer will work with almost any CAD file, making it a commodity part of the value stack. And with material going generic as well, there's little opportunity to build vertical integration on the manufacturing side.
The better plays in 3D printing
I don't think 3D Systems stock is a buy today. But if you're interested in the industry, the better play is Autodesk. That's the company that makes the critical software for the industry, and has both scale and consumer lock-in for many of its markets. That's better than being in the commodity 3D printing business, which looks like it's where 3D Systems finds itself.