The 3D printing industry is fast becoming one of the most exciting playgrounds as the competition is heating up. Companies in this segment have been growing rapidly and most of these companies have been able to grow revenues at breakneck speed. The growth in revenue is expected to continue in the short to medium-term as the industry is at the hyper growth stage at the moment.
Acquisitions: A Popular Strategy
The strategy followed only by 3D Systems (NYSE:DDD) at the start has been adopted by other players as well - Stratasys (NASDAQ:SSYS) has also started expansion through acquisitions. Acquisitions become a norm in usually two conditions of the industry: First, when there is a chance of hyper growth and the companies prefer to supplement organic growth with acquisitions - these companies start buying smaller players as sometimes it is cheaper to buy already established technology than developing it.
And the second condition is when the industry is usually at maturity of decline. Both of these conditions are complete opposites - however, somewhat similar strategies can be followed in these conditions. The reason for acquisitions or mergers in this stage of the industry is consolidation. The companies try to consolidate their positions and decrease/stop the decline in revenues. However, we are facing the first option at the moment, as the companies in the 3D printing segment are trying to grow rapidly by acquiring smaller players.
3D Systems made four acquisitions during the last quarter. In mid July, the company acquired 82% of the outstanding shares and voting rights of Phenix Systems, France based manufacturer of 3D printers. Other acquisitions included VisPower Technology (a design and management platform), CRDM, Ltd (a U.K. based rapid prototyping and tooling services provider), and The Sugar Lab (a producer of customized, edible confections). These acquisitions are small but it shows how the bigger companies are gobbling up smaller companies.
While 3D Systems have been making acquisitions regularly, Stratasys have been keeping a low profile. However, there seems to be a clear shift in the strategy at Stratasys - the company merger with Objet to make it one of the biggest 3D printing companies in the industry, and now it has acquired MakerBot, a consumer 3D printer manufacturer. 3D Systems have been mainly making acquisition in the related segment of the industry, and the company has been consolidating its position in the consumer 3D printing segment. However, Stratasys has acquired companies operating in differing segments than its core business.
Acquisitions Changing the Competitive Landscape of the Industry?
3D printing companies have been operating without any competition in the past. However, the competitive landscape of the industry is changing rapidly - more and more players are now identifying the growth opportunity in this segment. Along with the new players entering the industry, acquisitions are playing a vital role in shaping the industry. Keeping our two companies in focus, it is clear what type of the strategies these companies are following: 3D Systems is focusing on consumer segment; its core business segment, and Stratasys is trying to become a larger player encompassing all the major areas of the 3D printing industry.
Acquisitions made by 3D Systems in the past have resulted in consolidating its position as the number one in the consumer 3D printers. Its efforts are completely focused on the consumer segment and increasing its foothold as much as possible. The company has achieved substantial geographic expansion and it looks like 3D Systems will not let other players get a foothold in the consumer segment of the industry. On the other hand, Stratasys now operates in all the three major segments of the industry: consumer (MakerBot), industrial, and medical devices. Stratasys' acquisition of MakerBot has put it in direct competition with 3D Systems - although both these companies manufacturer industrial 3D printers, there are a very few products that are in direct competition. As a result, 3D Systems and Stratasys has not been direct rivals in the past.
I believe Stratasys is following a better strategy for the long-run. 3D Systems will benefit from its focused strategy, as it will consolidate its revenues substantially, and give it considerable geographic diversification. However, the company will be largely exposed to one segment of the industry, and in case of a slowdown in demand, there can be trouble for 3D Systems. On the other hand, Stratasys is achieving diversification in its business segments, which will allow the company to tackle any slowdown in demand in a single segment. As a result, Stratasys will be able to continue its revenue growth in the long-run. However, in the short-run, I expect both these companies to continue impressive revenue growth.
There is no loser in the short-term in the 3D printing industry. As a result of increased interest in 3D printing, every company in this industry is going to benefit. However, in the long-run, only the companies with solid strategies are going to survive. I believe 3D Systems will remain the biggest player in the consumer segment; however, Stratasys will be a better diversified player. At the moment, I believe both of these companies are solid investments, and I do not see any slowdown in revenue growth in the short-term.
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.