Will 3D Printers Start Printing Money?

Lior is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The new hype over 3D printers has picked up in recent months. Is this the new technological breakthrough that is worth entering? 

The main players

Let’s a take a close look at some of the key players that could cash in on the 3D- printing business. Stratasys' (NASDAQ: SSYS) acquisition of Makerbot for $604 million is positioning Stratasys as the prime company in the 3D-printing business. It is also looking for ways to expand its reach with this product:  Stratasys has recently agreed to provide 3D printers to UPS Stores. This step will enable more people to see the performance of the 3D printers on the way to becoming more common. 

3D Systems (NYSE: DDD) generates most of its revenue from 3D printers--this segment accounts for 45% of its total revenue. The company continues to expand its operations not only via organic growth but also via acquisitions.

In the second quarter, the company’s revenue spiked by more than 44%. Despite the sharp rise in revenue, the company’s profit margin fell from 16% in the second quarter of 2012 to 14%. The main driving force behind its sharp rise in revenue was the printers and other-products segment that more than doubled in the second quarter. 3D Systems and Stratasys are the two big players that have more than a foot in the 3D printing business. 

Hewlett-Packard (NYSE: HPQ) is still not in the 3D-printing business, as management thinks it’s still early in the game. But the company’s large resources, know-how in printers, branding and marketing will make it relatively painless to get into the game once it become more substantiate. 

In the stock market, these companies have rallied in recent months: shares of 3D Systems jumped by more than 30% (year-to-date), while Hewlett-Packard’s stock spiked by 86%. Conversely, shares of Stratasys only slightly increased by approximately 8%. 

The sharp rise in HP’s stock is related to other facets of its operation,s including the recent settlement for its price-fixing lawsuit, the company’s developments in the smartphone industry, and the changes in the company’s focus. Nonetheless, HP’s revenue isn't progressing and fell by 10% in the recent quarter, while its profit margin narrowed to 5.8%. The company’s progress is only partly related to its 3D-printing operations--HP’s printing segment accounts for nearly 48% of its total revenue. 

Looking forward, the company projects its non-GAAP diluted EPS will be between $3.50 and $3.60 in 2013 – this is around 12% lower than last year’s EPS and around 28% lower than 2011’s EPS. 

The tipping point

The current price of printers ranges mostly from $350 to $3,000. The big question will be the tipping point, in which this type of technology will become ubiquitous in every household. I think, based on other technologies, the following factors may nudge this product towards the tipping point:

  1. Pricing: the main issue will continue to be the price of this product. The lower-level printers are affordable at $500, but I think that the main turning point is more likely to be once at this price range a customer could purchase the high-end product.
  2. Marketing and branding: successful branding and marketing will be key points. If the iPhone taught us something, it is that marketing and branding are important for success.
  3. Cost versus benefit: a printer, unlike an iPhone, isn’t something you walk around and connect. Moreover, you do not use it as often. I suspect for the 3D printer to become popular, the benefit must significantly outweigh the cost of this product. 
  4. ROI: in continuation of the previous point, according to a recent economic analysis, a family that will only produce 20 household items a year will be able to return the price of the printer within a few months to a few years. This is a reasonable ROI, but I have several reservations about this analysis: the current limitations of what the 3D can print; for instance, the time and effort you will need to put in to print a small shower curtain hook versus just picking this product in the next time you are in Home Depot. I’m also dubious if the low-end 3D printers can produce a wide range of products. Nonetheless, the cost-benefit-analysis is slowly tilting towards a higher ROI, which will eventually make it very economical to have.
  5. Simplicity of use:  Even though it took me a while to teach my mom how to use a smartphone, it’s still something that she managed to learn and use. Currently, 3D printers aren’t as simple to use as 2D printers are (and even 2D printers aren’t that easy in certain situations or brands). Once 3D printers become easier to use, I think these printers will take a big step forward. 

Takeaway

So has the 3D printer arrived? Will this technology become the next big thing? It all depends on the future developments of this product. The issues I have listed above could determine the future progress of this product in the coming years. The uncertainty around the future of this product also entails a reward if it will become the next rave. Therefore, investing in companies such as Stratasys and 3D Systems could mean investing in the next big-growth companies. 

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Lior Cohen has no position in any stocks mentioned. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: short January 2014 $36 calls on 3D Systems and short January 2014 $20 puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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