Amazon Rides the 3D Printer Wave
Vladimir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Amazon (NASDAQ: AMZN) has recently started selling 3D printers on its website. The online retailer has dedicated a special section to printers and related materials and software. 3D printing, which is also known as additive manufacturing, is a hot topic. This technology is positioned to be a game changer for manufacturing and healthcare. However, the retail consumer potential is a source of constant debate.
First 3D printers were too pricey and complex. As the price of these machines got cheaper, they attracted more attention. Still, the starting kit for 3D printing, which includes printer and materials, would cost you more than a thousand dollars. At this price, 3D printers are far away from the mainstream. Amazon’s move may be a signal that this situation can change.
The 3D printing part of the website is still fresh, but you can easily find Cube 3D Printers made by 3D Systems (NYSE: DDD). Makerbots, which are produced by Marketbot Industries, are there too. I was unable to find the Mojo printer produced by Stratasys (NASDAQ: SSYS). The reason for this is Mojo’s price. At just under $10,000, Mojo is not for an ordinary consumer, although Stratasys positions it as “affordable.”
For Amazon, this is a strategic move. The company clearly wants to explore the 3D consumer market. For the 3D printer companies, it is a chance to get their product exposed in front of a very large audience. 3D printing is a geek thing. To get things going, it needs to find its way into the pockets of a larger number of people.
You cannot expect this move to significantly influence Amazon’s earnings. Trading at 85 forward P/E, Amazon must expand its business into potential ventures to justify its valuation. 3D Systems has been increasingly active on the retail consumer side of its business. The company states that its Cube and CubeX 3D printers enjoyed favorable marketplace reception and sales of these printers continued to be at the top of the company’s expectations.
3D Systems faces fierce competition from Makerbot on this front. The company is known for its relatively cheap printers, as well as the base of the downloadable designs for 3D printing called Thingiverse. The creation of such databases would be the key to mass adoption of 3D printing. It is highly doubtful that the average consumer would bother with acquiring the necessary knowledge and skills for 3D design. It’s much more likely that they would like to purchase and download designs and make minor changes to them.
Stratasys has nothing to offer this market at this point of time. Its cheapest printer is targeted on individual professionals and is not affordable for hobbyists. The retail 3D printing would get increasingly crowded, so Stratasys has little time to make a decision on whether it would like to compete in this market or not.
As I’ve said earlier, Amazon trades at an impressive 85 forward P/E. The stock has been an underperformer this year, up only 8%. This year earnings estimates for Amazon have fallen by 11.5% during the last 90 days. The company must provide sufficient growth to be able to support the high valuation.
3D Systems trades at a 35 forward P/E. The stock is up 28% this year. The stock trades at 11.2 price-to-sales. The market evaluates Stratasys similar to 3D Systems. The stock, which is up 2% this year, trades at 33 forward P/E and 11.8 price-to-sales. You can notice the lack of dynamics in Stratasys’ stock this year.
Amazon makes a good move by offering a marketplace for one of the most prospective technologies. The result of this move would not be seen in the short-term. It is hard to judge the size of the market for consumer 3D printing. There are risks that it would be difficult for technology to get to the wider audience.
3D Systems wins from this move, as its products gain another channel of distribution. 3D Systems is active in this segment and could end up as one of the established leaders. Stratasys ignores this market. At the growth stage, where it is important to get your feet almost everywhere, this could be a mistake. Perhaps, it partially explains why Stratasys’ stock has underperformed this year.
3D Systems is at the leading edge of a disruptive technological revolution, with the broadest portfolio of 3-D printers in the industry. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today the company sports a dizzying valuation. To help investors decide whether the future of additive manufacturing is bright enough to justify the lofty price tag on the company's shares, The Motley Fool has compiled a premium research report on whether 3D Systems is a buy right now. In our report, we take a close look at 3D Systems' opportunities, risks, and critical factors for growth. You'll also find reasons to buy or sell the stock today. To start reading, simply click here now for instant access.
Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, Amazon.com, and Stratasys. The Motley Fool owns shares of 3D Systems, Amazon.com, and Stratasys and has the following options: Short Jan 2014 $36 Calls on 3D Systems and Short Jan 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!