Stratasys Breaks Into Desktop 3D Printing
Vladimir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It has not been long since Amazon started selling 3D printers. This move was a signal to the market that 3D printers are not only for corporations and industrial designers, but for ordinary people as well. There are more ordinary people than industrial designers, right? This is why 3D printing firms have turned their attention towards the retail customer.
In my recent article, I noticed that Stratasys (NASDAQ: SSYS) lacks relatively cheap 3D printers that it can offer to the mass market. I stated that the company is risking losing the market to competitors like 3D Systems (NYSE: DDD) if it is not fast enough to enter the desktop printer market.
As it turned out, Stratasys’ management was thinking in the same direction. The company has announced that it is acquiring desktop 3D printing company MakerBot. MakerBot, which was founded in 2009, is a leader in desktop 3D printing. The company has sold more than 22,000 3D printers since it was founded. It has recently gained momentum, and has sold 11,000 of its latest MakerBot Replicator 2 desktop 3D printers in the last nine months.
The deal is expected to cost Stratasys around $400 million. The transaction is expected to happen in stock, so cash position would not be affected. In addition to desktop 3D printers, MakerBot possesses the thingiverse.com portal. This portal offers 3D product files for download, and is the largest database of such files.
Back in the game
After this move by Stratasys, 3D Systems gets a serious competitor in the desktop 3D printing field. Sure, MakerBot already was a competitor before it was acquired by Stratasys, but now, it is powered by the financial and marketing strength of a bigger company and becomes even more dangerous.
The market is still in its early days. Stratasys estimates that 70,000-80,000 desktop 3D printers would be sold this year. This is twice more than the amount that was sold last year. If we assume the same growth rates, the market would be eight times bigger in just three years. The price of leading desktop solutions is expected to fall to $1,000, and this brings us to a market size of $640 million. A sum worth fighting for.
Retail? Not for all
Not everyone is rushing into retail solutions. ExOne (NASDAQ: XONE) is making complex industrial 3D printing systems that typically cost around $1 million. ExOne’s unique selling point is the possibility of using sand as a material. It is its weakness at the same time. While producers can make money selling specific plastics for their printers, ExOne could not sell sand.
Nevertheless, the stock is enjoying a wonderful year. It is up 95% since it began trading in February. The market is optimistic about ExOne’s future. The stock is trading at a 92 forward P/E, while Stratasys is trading 32 times forward P/E and 3D Systems is trading at a forward P/E of 33.
Would ExOne go into retail with a purchase like Stratasys? I don’t think it’s plausible. There is too much of a gap between what the company produces now and what desktop printing is.
Who will win?
Just buying MakerBot would not be a game-changer for Stratasys. The company must leverage this purchase, drive more marketing power, and establish its leading position. 3D Systems would probably be more active on the desktop front as it realizes that its main competitor has just become more powerful.
Both companies are similarly valued not only by forward P/E, but by price-to-sales too. Stratasys trades at 10.4 times sales, while 3D Systems trades at 11.4 times sales. Analysts are expecting more upside for these stocks. Mean target prices for Stratasys and 3D Systems are $93.31 and $51.93, respectively.
The battle between two companies might help grow the market, as they will spend more marketing dollars. This would lead to more product awareness among potential customers. Currently, none of the companies is dominating the market, and it might stay like that in the near future.
Stratasys has made a great purchase and has shown that it is serious about desktop 3D printing. I think this purchase strengthens the company and is good for the stock. 3D Systems faces more competition, but in the short-term, it would not be disruptive. This year's earnings estimates for these companies have been slightly revised upward during the last 90 days. Both stocks present a good way to get exposure to 3D printing.
ExOne is a risky bet. The stock has gone a long way since IPO. The company depends on large-scale sales, which would be difficult to get given the weak economy. The 15.4 price-to-sales ratio also indicates the stock has gone too far too fast.
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Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, Stratasys, and The ExOne Company. The Motley Fool owns shares of 3D Systems 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!