Wohlers Associates, arguably the highest-regarded company in the world that provides 3-D printing insights, just released its annual Wohlers Report 2014, an exhaustive look at the state of the 3-D printing industry over the last year and where it's heading in the future. According to the report, the worldwide 3-D printing industry generated $3.07 billion worth of activity related to products and services in 2013, representing an increase of 34.9% year over year. For those keeping track at home, this growth rate was the highest experienced in the last 17 years -- and easily outpaced the 26-year average of 27%.
For 3D Systems (DDD +1.69%) and Stratasys (SSYS +0.50%) investors, accelerating industry growth rates certainly help the long-term-investment thesis, assuming these 3-D printing giants can continue to grow along with the industry and maintain gross profit margins.
Rapid change
According to Wohlers, the 3-D printing industry will likely experience strong growth in years ahead, fueled by a combination of sub-$5,000 "personal" 3-D printer growth and expanding the technology's uses to make parts for final products, especially around metals. Later this year, 3D Systems will begin shipping the CubePro, a sub-$5,000 "prosumer" 3-D printer, as well as the CubeJet, a full-color, sub-$5,000 3-D printer, powered by its ColorJet technology that's typically reserved for printers in the high five-figure-price range.
On the manufacturing front, General Electric currently has plans to 3-D print commercial jet engine fuel nozzles at a rate of more than 40,000 per year, and should take to the skies in the coming years. If all goes to plan, it would mark a significant milestone as the first major application where 3-D printing took on a mission critical role on a larger manufacturing scale.
Tim Caffrey, a senior consultant with Wohlers Associates believes "the industry is experiencing change that we have not seen in 20+ years of tracking it." Between 3D Systems announcing 24 products since December and Stratasys making a big push into services space with its recent acquisition of Solid Concepts, it's hard to argue otherwise.
Lots of possibilities
In the press release, Caffrey was quoted saying how the 3-D printing industry has "barely scratched the surface of what's possible." What I believe he's referring to is how early on in the adoption cycle it is for 3-D printing manufacturing applications. While companies like GE are making great strides to advance the technology to be better suited for manufacturing, it's going to take time for the manufacturing industry as a whole to introduce 3-D printing onto the manufacturing floor. One of the biggest bottlenecks holding back the adoption of 3-D printing in manufacturing settings is organizational readiness. Currently, there's a generally a lack of expertise around the 3-D printing process across the manufacturing industry and the only way to overcome this challenge is for education around 3-D printing to improve.
As far as investors are concerned, the 3-D printing industry's slow shift into manufacturing will likely benefit 3D Systems more so than Stratasys because it offers a suite of printers designed specifically for manufacturing applications. During 3D Systems' first-quarter 2014 earnings call, CEO Avi Reichental acknowledged that its direct metal line of 3-D printers will likely become an increasingly important segment of its business.
Talking market share
Including acquisitions, 3D Systems grew its 2013 revenue by 45% over 2012 results and Stratasys grew its 2013 sales by 35% year over year. Compared to industry growth rates, 3D Systems is gaining revenue share over Stratasys, which is only keeping pace with industry growth. Down the road, it could lead to a situation where 3D Systems commands a greater percentage of the profits in the 3-D printing industry compared to Stratasys, despite the fact that Stratasys currently commands the largest installed base of 3-D printers in the industry.
It's important for investors to understand that revenue share and gross profit margins will be a greater long-term determinants of profitability than market share. Judging by the fact that 3D Systems had a higher gross profit margin than Stratasys in 2013, and it's already beating Stratasys on the revenue front in terms of growth and size, it seems likely that 3D Systems becomes a more profitable business than Stratasys over the long term. Going forward, investors will get better insight on 3D Systems' profitability as its operational leverage is restored is the coming years.
