3D Systems Might Surprise Investors Next Week

| About: 3D Systems (DDD)

Summary

Google’s project Ara and a partnership with Staples put 3D Systems in a more favorable position to grow its consumer business.

We should see heightened volatility before and after the earnings report, and we might see a sustainable bottom in the share price depending on the first quarter results.

Delayed customer purchases in Q4 should boost revenue growth in Q1, and help 3D Systems beat estimates.

I warned readers last week about the worst case scenario pricing of 3D Systems (NYSE:DDD) that could drive the share price down to $35. And as we approach the end of April, we should see higher volatility, since 3D Systems is expected to report first quarter earnings on April 29. I have reason to believe that 3D Systems might surprise on the upside when it reports next week. The expansion in Latin America and new developments on the consumer front should provide a stronger footing for future growth, and the rapidly expanding product portfolio in prior months should help the company's revenue growth momentum throughout 2014. Short-term risks in the general market could push the share price lower in the next couple of weeks, but I believe we are very close to a sustainable bottom.

New developments on the consumer front should help drive long-term growth

In November 2013, 3D Systems partnered with Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Motorola Mobility unit to develop 3-D printed modules and user-customizable smartphones to support the project Ara. Although Google sold Motorola to Lenovo (OTCPK:LNVGF), it kept its patent portfolio and project Ara. 3D Systems' CEO Avi Reichental said in early April that the building blocks of Ara will start shipping early next year. Project Ara is designed to produce a configurable smartphone. Upon purchase, "you will get an empty smartphone frame. And then you can insert the hardware components of your choice on the back of it." 3D Systems will make the plastic parts, including the circuitry, as well as the custom designs on the surface of the blocks. This bodes well for 3D Systems' consumer initiative, although we will see the first results of the partnership in the second half of 2015.

On April 14, 3D Systems announced a partnership with Staples (NASDAQ:SPLS), and a pilot project of 3D printing services in two Staples stores in New York and Los Angeles. The two stores will let consumers and small businesses create personalized products and use 3D printing hardware. This pilot program will help 3D Systems to learn about customers' needs for a local 3-D printing service. There is also potential for a meaningful rollout of 3-D printing services across the country in the next couple of years. This pilot program should be regarded as a great learning tool for the company going forward, which has potential to become significant down the road.

Goldman is favoring Stratasys

Goldman is more bullish on Stratasys (NASDAQ:SSYS), which has a solid presence in the industrial end markets, and noted Stratasys also has potential to gain a larger share of aftermarket revenue by leveraging its RedEye business. I would add that Stratasys has also been more successful on the consumer front, at least when judged by revenue contribution, although I expect the previously announced initiatives will help 3D Systems to better compete in the consumer markets. 3D Systems also has an advantage over Stratasys in the metals printing market.

Earnings report is expected next week, and we should see increased volatility in the next two weeks

3D Systems is due to report earnings next Tuesday and we should see higher volatility in the next two weeks. I believe that revenue growth and the progress in the consumer market will be the most important metrics. The market was disappointed with Q4 revenue being slightly below the mid-range of management guidance, and management stated that the announced releases of new products delayed purchases in Q4. The delayed purchases should help boost Q1 revenue growth, and I believe this might be a decisive factor in the Q1 report which should help 3D Systems to report above expectations. An increased 2014 revenue guidance might also help the share price next week. The Q1 earnings report should be the determining factor for the short-term share price. If 3D Systems disappoints once again, we might be headed for the worst case scenario and a share price of $35. But I expect a positive report next week, and the share price might not get there, unless we see a strong sell-off in the general market, as was the case in the last couple of weeks.

Conclusion

3D Systems continues to expand aggressively with new partnerships and acquisitions. The results of strong product introductions should be visible in the earnings report next week, as the delayed customer purchases should help 3D Systems deliver above expectations. Higher volatility should be expected in the next two weeks, and a favorable earnings report will probably put an end to a decline in the share price. On the other hand, a poor earnings report and a general market sell-off might drive the share price below $40.

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.