Exone (XONE) has outperformed major players in the 3D printing industry, 3D Systems (DDD) and Stratasys (SSYS), since it went public in February 2013. Its stock price grew by 68% compared to growth of around 22% of the other two giants. Exone's stock price plummeted on Sep. 3, 2013 due to the company's secondary offerings.
We believe this declining stock has upside potential, owing to its expansion plan in Germany. The company plans to enhance its facilities in Germany under its global growth strategy. Exone's above mentioned rivals also expect to grow with their strategies like acquisition and merger. So, there is lot of growth potential in the 3D printing industry, but which is the right bet for investors?
XONE data by YCharts
Exone announced to expand its facilities in Germany in August 2013. The company has domestic facilities in the U.S., and its international facilities are located in Germany and Japan. Exone is expected to almost double its operations in Germany; the new expanded facility will comprise around 150,700 square feet, which is almost double the company's current 77,500 square foot facility. The expansion will merge the company's European facilities that include production; warehousing, research and development facility, and Exone's European headquarter.
This expansion plan is expected to start operations next year. We feel that the expansion plan is significant for the company; out of $50 million allocated for the growth strategy in 2014, around 40% was meant for this expansion plan in Germany. Europe contributed around 37.1% of the company's total revenue in fiscal year 2011 and 48.7% in fiscal year 2012, which is a significant growth in revenue contribution. With this expansion plan, we expect that Europe will continue this significant revenue contribution next year. We expect it to drive the company's earnings, thereby increasing the earnings per share in next fiscal year.
Growth with acquisitions
Its competitor 3D Systems is expanding in the U.K. with its acquisition. On Aug. 20, 2013, 3D Systems announced acquisition of CDRM to boost its 3D printing business. CDRM is a U.K. based company that provides 3D printing services. 3D Systems expects to boost its 3D printing services with this acquisition.
3D Systems is on a spree of acquisitions. It acquired a California based company, Sugar Lab, on Sep. 10, 2013. Sugar Lab provides 3D printing services using sugar.
President and CEO of 3D Systems, Avi Reichental, stated the significance of this acquisition,
"I believe there is a social covenant for indulgence that begins with desserts and The Sugar Lab will accelerate our ability to bring edible 3D printables to the masses while empowering chefs, restaurateurs and confectioners with never before explored digital creation tools for food."
We expect that this acquisition will increase 3D Systems' customer base, as it will add Sugar Lab's clients like bakery shops and restaurants to 3D Systems' existing clientele.
The 3D printing industry is expected to grow at a compounded annual growth rate of 22.22% over the period of 2012-2017, reaching $6 billion in 2017 due to its wide applications in spheres like medical, architecture, and electronics, to name a few. As 3D Systems is a big player in the 3D printing market, we feel that, with its acquisitions, it is well positioned to capitalize on the burgeoning 3D printing industry. During the period of July 2011 to July 2012, the company acquired around nine companies, and continuing the same pace, it acquired nine companies from October 2012 to September 2013. In the first half of this year, the company's revenue grew 38%, driven by growth in its 3D printing services due to its acquisitions. We assume that 3D Systems will continue with the acquisitions at the same pace in the future, which will continue to bolster its revenue growth.
Exone faces competition from another 3D printing company, Voxeljet, which filed for initial public offering, or IPO, on Sep. 17, 2013. Voxeljet reported a strong backlog of $6.87 million, which comprised of seven 3D printers as on June 30, 2013. The company expects to ship the majority of this backlog in December 2013, and the remainder is expected to ship before June 2014. During the first half of this year, Voxeljet sold three 3D printers. Assuming that the company will continue selling 3D printers at the same pace for the second half of this year, then by simple extrapolation, the backlog is expected to generate $2.94 million in revenue by the end of this year. The company generated total revenue of $11.33 million last year. So we can conclude that the backlog will earn significant revenue for the company.
Exone reported backlog of $6.9 million, as on June 30, 2013. This backlog comprised of orders for its 3D printing machines. These machines accounted for 62.8% of the company's total revenue in the second quarter of 2013.
Exone anticipates fulfilling this backlog through September 2014. The company generated total revenue of $28.6 million last year, which suggests that the backlog of $6.9 million forms a significant portion of the total company's revenue. We believe the backlog will benefit Voxeljet in the near term, as it will fulfill the majority of its backlog by the end of this year, whereas backlog will benefit Exone next year.
Focus on low cost printers
Stratasys is another big player in the 3D printing industry. It currently provides its 3D printing services to large commercial and industrial clients. In a bid to enhance its customer base by adding small consumers, the company merged with Makerbot, a well-known Brooklyn based company in the 3D printing market, for $403 million.
In an interview with Forbes, Scott Crump, chairman and chief innovation officer of Stratasys, stated, "Combination of low prices, of 3D printers, and content on the Internet will help Stratasys proliferate into new markets including small consumers."
Since 2009, Makerbot has sold more than 22,000 3D printers, and out of these, around 50% were sold during the period of September 2012 - June 2013. Makerbot broke the price barrier of 3D printers by selling them at less than $2,000. We expect that the increased traction during the last few months for Makerbot's low cost 3D printers will further increase in the future. Consequently, this will expand Stratasys' customer base, adding more small consumers to it.
Post-merger, Stratasys plans to sell 3D printers for as low as $1000, compared to expensive professional 3D printers which cost around $10,000. Additionally, Stratasys intends to ramp up its production of low cost 3D printers. Accordingly, Crump stated, "Rather than sell 2,000 systems, I would anticipate that we are selling 50,000 printers each year." With this merger, we think the company will be able to give stiff competition in the consumer segment. Moreover, we expect this merger to be a significant growth driver for the company. In its second quarter earnings report, Stratasys upgraded its revenue guidance for this fiscal year ending on Dec. 31 2013, owing to this merger. The company revised its earlier revenue estimation of around $445 million to $480 million by the end of this year.
Exone launched secondary offering of 2.65 million shares on Sep. 3, 2013. This declined Exone's share price. Under its secondary offerings, the company raised around $189.35 million. The company is expected to enhance its facilities in the future with these secondary offerings.
For the next year, we expect Exone revenue will enhance due to its global expansion plan that will enhance its facilities in Germany. Investors who currently hold positions in the stock should continue holding their shares, as the company is expected to burgeon next year. Investors might also consider making a new position in the company for worthy returns.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Fusion Research is a team of equity analysts. This article was written by Shweta Dubey, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.