What happened 

Shares of rapid manufacturer Proto Labs (PRLB -1.26%) fell as much as 31.8% in trading on Friday after the company reported quarterly earnings. Shares closed the day down 31.1%. 

So what 

Third-quarter revenue fell 2.9% to $121.7 million and net income fell from $4.8 million a year ago to $4 million, or $0.14 per share. Analysts expected revenue to be flat, so that was a slight disappointment, but adjusted earnings per share of $0.40 beat estimates by $0.02. 

On the conference call, management discussed soft demand from end customers and manufacturers reducing inventory buildup, which is why revenue was down. They don't expect the decline to end now, with fourth-quarter 2022 guidance for $107 million to $115 million in revenue and non-GAAP earnings of $0.18 to $0.26 per share, well below the $0.43 that analysts expected. 

Now what 

The competition in rapid prototyping is high and that puts a cap on both growth and margin because customers can often buy equipment to make products themselves. Proto Labs is also seeing demand overall soften as customers worry about inventory and look for ways to cut costs. 

These are expected challenges in an economic downturn, but they're hitting the stock hard today. Investors may want to wait to see if a turnaround comes soon because Proto Labs can't live with falling revenue and net income for long, given its low market cap.