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Summary

  • Strategic mergers and acquisitions are helping Stratasys' growth considerably.
  • Stratasys is expanding its offerings in more markets and is also diversifying product lines.
  • While Hewlett-Packard is a threat, Stratasys' expertise and sound positioning in the industry should help it do well.

Shares of 3D printing company Stratasys (NASDAQ:SSYS) have taken a serious beating this year. The stock is down 20% and recent news that Hewlett-Packard (NYSE:HPQ) will soon outline its plans of entering the 3D printing market soon have also sent shivers down the spine of Stratasys investors. However, since Stratasys' business focuses more on the industrial 3D printing segment rather than domestic, it is targeting a very lucrative market where big industrial corporations would utilize its services and products.

Sound M&A Strategy Driving Growth

As such, it wasn't surprising that Stratasys' fourth-quarter revenue jumped 119% to $155.8 million. The Stratasys-Objet merger played a big part in this solid revenue growth, generating $156 million in revenue for a year-over-year organic revenue growth of 36%, and the trend should continue. The resulting synergies of the merger and the rapidly expanding market for 3D printing and additive manufacturing solutions, especially in the industrial segment, should give the company enough room to grow its business.

Furthermore, the synergies of the acquisition enabled Stratasys to post non-GAAP net income of $25.8 million in the previous quarter. Hence, things look good for Stratasys so far. But will they be the same going forward?

Stratasys has made some very good acquisitions in the past. The company is enjoying the success as a result of its merger with Objet and the acquisition of MakerBot has helped matters further. MakerBot is playing a big role in Stratasys' growth, as the acquisition helped it sell 10,963 units of 3D printers last quarter.

A Slew of Positives

Stratasys is focusing on the expansion of its business. It is investing heavily in R&D, sales, and marketing to explore more business opportunities. Also, Stratasys is seeing rapid expansion in the market for 3D printing and additive manufacturing solutions worldwide. The reason behind Stratasys' strong organic revenue growth can be attributed to strong broad-based demand across its entire product line, including the production series, design series, and the idea series of 3D printers.

Stratasys' international performance has also been quite good, with continued growth in the Asia-Pacific market as a result of ramping up sales and marketing investments. Now, Stratasys is looking to strengthen its position in the market by improving functionality and affordability of its products. Stratasys is focusing on its digital manufacturing business with many new products in the pipeline. Lastly, Stratasys is looking to improve the accessibility of 3D printing so as to increase its addressable market.

Product Innovation to Drive Growth

Moving on to the product line, Stratasys has great expectations from its new Objet500 Connex3 Color Multi-Material 3D Printer. The company expects the printer's triple jet technology, which allows users to combine color with a virtually unlimited combination of rigidity, flexibility, and transparency, to attract more users. Furthermore, Stratasys is coming up with new apps for the MakerBot replicator platform with unmatched speed, reliability, quality, and connectivity. It is looking to deliver an easy-to-use and reliable desktop 3D printing platform with its new apps so as to cover the full range of consumer, prosumer, and professional users.

In addition, Stratasys recently announced new PolyJet material for the Connex platform, including Digital ABS2, which creates realistic, precise prototypes that are heat-resistant. Combined with the three new color-enabling materials that it recently introduced for the new Connex3 Color 3D Printer, this PolyJet material is expected to do well.

Stratasys is also expanding overseas in regions such as Singapore, Japan, and China. Stratasys is also seeing a strong start to its recently established, fully owned subsidiary in Korea. In addition, Stratasys has also entered into a distribution agreement with Dell to provide MakerBot Replicator 3D printers bundled with Dell Precision Workstations for small and medium-sized businesses. This will definitely enhance the reach of Stratasys' printers going forward.

Also, Stratasys is seeing strong growth opportunities in the dental and medical fields. With its recently announced Objet Eden260V Dental Advantage 3D printer and VeroGlaze dental material for Objet Eden V and OrthoDesk printers, the company is going all out to target this market. So, Stratasys has performed very well and it should continue to do well on the back of its R&D investments, expansion plans, and entry into new market segments.

Potential Competition

Stratasys investors do need to keep an eye on HP's move into the 3D printing market. HP sees strong opportunity in the 3D printing market. HP's management is of the opinion that worldwide sales of 3D printers and related software and services will grow at a terrific pace to hit $11 billion by 2021. This will be a solid jump from just $2.2 billion two years ago.

According to Reuters, HP CEO Meg Whitman believes that "HP's inhouse researchers have resolved limitations involved with the quality of substrates used in the process, which affects the durability of finished products."

Hence, Stratasys will need to move fast and ensure that its 3D printing offerings are cutting edge. However, it is still not clear as to whether HP will focus on the industrial or the consumer market, so for the time being, investors shouldn't be scared too much of an HP invasion into Stratasys' space. Also, given Stratasys' solid M&A strategy, diversification moves, and expertise, the company looks well-positioned for the long run.

Conclusion

In all, it can be said that Stratasys has been pretty solid so far and it should continue to perform well due to the various reasons that we saw above. While HP is indeed a threat, until and unless we know the extent of the threat, we shouldn't discard HP. Going forward, growth in industrial 3D printing and Stratasys' end-market growth should lead to strong growth.

Source: A Few Solid Reasons Why Stratasys Is A Good Buy