Stratasys Ltd. (SSYS 0.96%) had another tough year in 2015, as did fellow larger, diversified 3D printing company 3D Systems and most of the smaller 3D printing companies. Stratasys' stock has plummeted 67% year to date in 2015, through Dec. 24.
A challenging macroeconomic environment was partly to blame for Stratasys' poor performance in 2015. However, the company mishandled some factors within its control, which contributed to its woes. Here are Stratasys' worst moves in 2015.
MakerBot Replicator. Image source: Stratasys.
Letting MakerBot get to the implosion point
Most current or recent bad moves by companies or individuals involve seeds planted in the past. That’s true with Stratasys’ moves involving MakerBot, its desktop 3D printer unit.
As a recap: MakerBot's year-over-year sales growth, which had been robust since Stratasys acquired the company in mid-2013, nosedived starting in the fourth quarter of 2014, leading to Stratasys posting worse-than-expected financial results in 2015. The trigger for the sales drop was a widespread issue involving faulty extruders on the fifth-generation Replicator, released in 2014. Additionally, Stratasys took goodwill impairment charges for MakerBot in 2015 totaling somewhere between $436 million and $476 million, more than the $403 million it initially paid for the company. So, to say that Stratasys overpaid for MakerBot would be huge understatement.
Stratasys' first mistake was buying MakerBot -- or at least buying it when it did and paying a stratospheric $403 million for it. The company's management apparently got caught up in the hype that consumers were soon going to be clamoring en masse for 3D printers, which wasn't (and isn't) going to happen as long as the printers are slow as molasses and have limitations when it comes to multicolor printing. Most everyday consumers -- we're not talking about extreme hobbyists, or "makers" -- want gadgets and other products that will save them time, not eat away at what little free time they do have. This is precisely the concept that Amazon has built its massive e-commerce empire upon, and it's a core reason Netflix kicked Blockbuster to the curb.
Furthermore, consumer gadgets almost always become commoditized, resulting in extremely thin profit margins at best. Apple is one of the very few companies in the consumer electronics and related space that has been able to very successfully differentiate its products and, thus, charge a nice premium for them. This doesn't mean Stratasys' MakerBot buy will never pay off -- it might. The brand remains, for instance, the favored 3D printer among educational institutions, according to most reports. However, if the tech giant decides to enter the desktop 3D printer market -- its patent activity reveals that a killer 3D printer might be in the works -- MakerBot's woes are only going to increase.
Stratasys' more recent mistake was prematurely releasing the fifth-generation Replicator in 2014. MakerBot sales were probably going to slow since consumer-targeted 3D printers aren't quite ready for prime time. However, the release of a widely faulty product surely moved up the time frame of a slowdown and intensified the drop-off in sales.
Management not taking more responsibility for its results
Top execs at public companies have a tricky line to walk, as they need to strive to present accurate information to investors yet maintain investor confidence. That said, Stratasys' top management could have done a better job of taking some responsibility for its execution missteps in 2015.
I'm referring mostly to the execution missteps related to MakerBot, discussed above. We've not heard a "We're sorry, we messed up and, importantly, we learned from it," or the like. The company released the fifth-generation Replicator in 2014 before it should have, which led to many returns and a fall-off in sales. Management either didn't know about the quality problems before the product launch, or it knew about them and forged ahead anyway. We can't know for sure which of these two scenarios occurred, but both indicate a problem.
Printing a wrap...
Stratasys' management has generally done a good job of executing on its core enterprise business. However, things are almost surely going to get much tougher in the enterprise business in 2016 and beyond. Deep-pocketed HP and well-funded start-up Carbon3D both plan to release super-speedy 3D printers in 2016 that sport other compelling features.
