) views its future in 3D.
The largest 3D printing company in the world, by number of
systems installed, is now combining three companies under one
umbrella: It's integrating last year's merger with Objet as well
as the more recent union with MakerBot.
Both mergers give Stratasys an even stronger foothold in the
3D space, while adding complementary systems to its
"The acquisition of MakerBot earlier this summer helps give
the company a little bit more growth as you project out into the
next three- to five-year time horizon as folks shift into
lower-cost machines -- and MakerBot has a really solid position
in that market," said Morningstar analyst Daniel Holland.
MakerBot makes affordable 3D printers that are used by
designers, researchers, engineers and consumers. It also operates
the industry's largest collection of downloadable digital models
and designs that can be printed on its machines.
A New 3D Distributor
Stratasys' MakerBot unit said Thursday that it has signed tech
distributorIngram Micro (
) as a partner to bring its products to U.S. resellers. Stratasys
stock soared about 7% that day, as stock indexes lifted. Shares
lifted 4% Friday.
Stratasys operates in two niche markets. One is form, fit and
function prototyping, where a part gets made close to its
intended finished-product design. It will have a certain shape,
weight and hardness. The other niche is concept-stage
prototyping, says Bobby Burleson, the Canaccord Genuity analyst.
Here, a part gets shared among engineers and designers, without
worry about weight and durability.
Analysts see the next big wave in 3D printing to be in the
rapid-prototyping professional markets.
While the patent has expired on Stratasys' fused deposition
modeling, or FDM, technology, the company has made the materials
used by its printers proprietary. A printer uses only a certain
array of materials, which limits competition from third parties
in this high-margin aftermarket.
"Because the patent had expired, you had some open-source
projects out there whereby MakerBot had come to market," said
Holland. "Prior to the patents expiring, you couldn't really make
a machine that used that process because it would be violating
Stratasys' patent. . .. MakerBot and a few others came out and
MakerBot got the most buzz in the maker community and with some
Gross margins on the printers are pretty solid, usually in the
40% to 50% range. The materials generate even higher margins,
closer to 65%.
While the MakerBot acquisition adds lower-priced printers to
Stratasys' portfolio, analysts also point out that the move was
likely defensive, buying out a potential competitor. As a result,
there is a certain risk of cannibalization within Stratasys'
portfolio of products.
On the other hand, the company hopes to eventually migrate
some of the professional customers who use lower-end machines
into higher-end machines.
"I think (the MakerBot acquisition) is additive ... it speeds
the adoption of the technology," said Burleson. "However, I do
think that Stratasys is ... anticipating that it was going to be
a direct competitor threat in a couple of years if MakerBot was
allowed to continue as an independent company -- they might have
come out with machines that directly competed with
The 3D printing industry is expected to grow substantially,
especially in the professional markets where engineers would have
a way to efficiently develop and test prototypes while shortening
the product development cycle.
A recent research report by Gartner projects shipments of 3D
printers priced less than $100,000 to increase 49% this year and
74% next year. Shipments worldwide are expected to reach 56,507
units in 2013 and 98,065 units in 2017.
Spending on those 3D printers is anticipated to grow 43% to
$412 million in 2013 and 62% to $669 million in 2014. About 78%
of the spending will be from businesses, with the remainder
coming from the consumer market.
The industry will evolve in several ways, noted Holland. The
first will be quick and efficient prototyping, something already
"There is a real economic savings to rapid prototyping," he
said. Before, it might've taken six months to get a product
finished; now development can take a couple of months.
Industrial demand is another area. Firms could make objects
ready for various applications.
"This is where the industry is still quite young and trying to
find its way, but it has to get in the hands of established
manufacturers to figure out the right way to integrate it,"
General Electric (
) supports and actively uses high-end, additive manufacturing.
Its aviation division last year acquired two firms that
specialize in that area. GE's energy and health-care units also
use this technology.
When companies figure out the design freedom and flexibility
along with product functionality that come with using a
3D-printed solution vs. traditional manufacturing, the 3D
technology will prove its worth, noted Holland.
A third expansion area is letting consumers pull designs off
the Internet to create objects for their use.
"This is a very nascent space," Holland said. "The key hurdle
to making this a more viable growth path for the industry is just
the general education and knowledge that it takes for a
There are now also more government initiatives taking place in
the space both in Europe and in the U.S.
The one area that Stratasys is lacking right now is metal 3D
printing. Piper Jaffray analyst Troy Jensen wrote in a research
report that the recently raised equity of $463 million from a
secondary stock offering may be used to acquire a company in the
metal 3D printing space.
"A push into this market would ultimately round out the
company's already impressive portfolio, helping to further
penetrate the aerospace and medical verticals (among others)," he
Management has been very conservative with its balance sheet.
The company has no debt and financed all the mergers with
Earnings grew at 29% to 54% in the past four quarters. Sales
growth accelerated from 24% to 63% to 116% and notched 116%
again. Investors need to keep in mind that the earnings and sales
figures will not be easily comparable to past periods, due to
Morningstar estimates in its more optimistic scenario that
average revenue growth will be about 45% in the next 10 years,
with 12% coming directly from the Objet acquisition.