Competition Clouds Outlook for 3D Printing Firms
We are maintaining our no-moat ratings and lowering our fair value estimates for 3D Systems and Stratasys.
After reviewing our outlook for 3D Systems (DDD) and Stratasys (SSYS), we are maintaining our no-moat ratings, lower our fair value estimates, and downgrading Stratasys’ stewardship rating to poor. Our fair value estimates drop to $11 per share from $14 for 3D Systems and to $20 per share from $24 for Stratasys. Today’s 3D printing market is characterized by intense competition, low barriers to entry, and rapid development cycles. Since 2014, both manufacturers have struggled to register economic profits as a dearth of new supply across the 3D printing value chain handcuffed supplier pricing power. According to Wohlers Associates, 135 companies sold industrial additive manufacturing systems (units priced above $5,000) globally in 2017, compared with 97 companies recognized in 2016 and 62 reported in 2015.
Stratasys and 3D Systems rely on a razor-and-blade model to drive deeper penetration into several end markets, including aerospace, automotive, healthcare/dental, and industrial manufacturing. With gross margins for printers having fallen below 30% thanks to a wealth of competing printers available in the consumer and industrial markets, both companies sell printers at or below their cost of capital while attempting to sell services and materials at higher margins, close to 50% and 70%, respectively.
Combined, Stratasys and 3D Systems command roughly 18% of the additive manufacturing total available market, which includes printer, software, and materials sales. However, we expect the market share owed to those manufacturers will erode over time. With the total available market growing from $7 billion in 2017 to about $45 billion in 2027 at a 20% compound annual rate, we believe 3D Systems and Stratasys’ combined market share will decline to close to 10% as new competitors and industrial stalwarts launch new printing systems and services. We believe 3D Systems is higher quality due to its clean balance sheet and slate of new products, but both names look fairly valued.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Danny Goode does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.