The 3D printing industry has brought a revolution just as personal computers transformed the computer industry. When the printers first hit the market about two decades ago, they were big, expensive and limited to making prototypes of products in the aviation, automobile and other heavy industries. As technology improvements emerged and CAD/CAM software prices dropped, the printers became more geared toward personal use. The software that once used to cost thousands of dollars can now be bought for few dollars, or for free.
This breakthrough technology opens a lot of new opportunities for many industries, like electronics and automobile makers, which were the first ones to start using 3D printers to make product prototypes. The trend is spreading to industries ranging from home builders to jewelers, aerospace, architecture, toy companies and medical companies interested in crafting replacement organs. Stratasys Ltd. (SSYS) is one of the leading manufacturers of 3D printing equipment and materials that create physical objects directly from digital data. The company's systems range from affordable desktop 3D printers to large, advanced 3D production systems, making 3D printing more accessible than ever.
Wohlers Report 2013 revealed the growth prospects of 3D printing. According to this report, the market of 3D printing grew at a CAGR of 28.6% to $2.204 billion in 2012. This market stood at $1.714 billion in 2011. 3D printing experienced a growth of 29.4% and 24.1% in 2011 and 2010, respectively. The average annual growth (CAGR) of the industry over the past 25 years was a staggering 25.4%. Over the past three years, the industry has grown at a CAGR of 27.4%.
Growth of the low-cost "personal" 3D printer market under $5,000 segment averaged 346% each year from 2008 through 2011. In 2012, the increase cooled significantly to an estimated 46.3%. Most of these machines are being sold to hobbyists, do-it-yourselfers, engineering students and educational institutions.
Historic Price Performance
The above chart shows the historic price performance of the company's stock compared to its competitor and S&P 500 Index. Stratasys' stock outperformed its competitor's stock and the index by providing a capital return of 63.03 percent. The reason behind the stock's outstanding performance compared to its competitor was the company's acquisition of MakerBot, the leader in desktop 3D printing. This merger created an additive manufacturing industry leader.
The above graph shows the company's revenues growth over the last four years along with its operating margin. Over the four-year period, the company recorded tremendous growth in its top line. The revenue grew at a CAGR of 30% during 2009-2012. The company's revenue drastically shot up in 2012 primarily due to the acquisition of Objet, a company that enabled Stratasys to introduce three leading technologies including FDM, PolyJet and Solidscape. The company generated $369 million in pro forma combined revenue in 2012, representing an impressive organic growth of 30%, compared to $277 million in 2011. This staggering growth in revenue was driven by stronger sales of its higher margin Fortus and Connex systems. The company's operating income and margins saw a huge dip in the year 2012 due to the increase in costs related to acquisition and expenses incurred to implement the strategic initiative to increase market awareness. These expenses were non-recurring in nature.
Recent quarter performance
In the second quarter of 2013, the company generated $106.7 million revenue which represented an organic increase of 20% over the same period last year. This increase was primarily led by relatively stronger sales of its higher margin systems and consumables. The company was able to translate this sales growth into its margins. The company's Non-GAAP net profit increased by a staggering 31% to $18.6 million in the second quarter compared to the same period last year.
Product revenues increased by 90% to $19.4 million in the second quarter of 2013 compared to the second quarter of 2012. This exuberantly high growth in product revenues was driven by direct digital manufacturing and the continued adoption of affordable desktop systems for prototyping applications.
Consumable revenue increased by 23% in the second quarter of 2013. This increase was driven by the acceleration in customer usage and growing installed base of systems. The company also benefited from expanding its consumables line, making it a separate business with a focus on expanding customer usage.
Revenue from service offerings increased by 28% in the second quarter of 2013 primarily due to an increase in revenue from maintenance contracts and service parts, reflecting its growing base of installed systems. The remaining increase in service revenues was the result of growth in its RedEye paid parts service which increased by 34% as compared to the second quarter of 2012. RedEye continues to benefit from the demand for the large and complex production parts as well as the continued development of its sales channels.
The 3D printing industry is expected to continue to show double-digit growth over the upcoming years. Wohlers Associates believes that the global sales of 3D-printing products and services will approach $6 billion by 2017. According to Wohlers Associates, the industry is projected to reach $10.8 billion by 2021. It took the 3D printing industry 20 years to cross the $1 billion mark. In five additional years, the industry generated its second $1 billion. It is expected to double again, to $4 billion, by 2015.
Moreover, CitiGroup analyst Kenneth Wong believes the 3D printing market is on the verge of seeing much broader adoption across more upstream production applications and the consumer end market.
Universal Parcel Service (UPS) is bringing 3D printing technology to the next level. Stratasys will provide its uPrint SE desktop machines to six UPS Stores in US for a trial program. These machines will allow customers to bring their designs to the store and have them printed out as objects. The uPrint machines can produce items in plastic in a range of colors and make bigger objects in finer detail than consumer-level 3D printers. This program which converts people's ideas into products can boost industry growth. Moreover, the company has strengthened its market and financial position over the years through a successful series of acquisitions to tap the future growth of 3D printers. The company has a bright future outlook, so I suggest investors to translate this industry growth into their portfolios by investing in this stock.