Learn How To Invest In 3D Printing Stocks
Last year, more than $5.1 billion were generated in worldwide revenue, a 25.9% year-over-year increase, by the 3D printing industry as per the Wohlers Report 2016, a leading 3D printing insights report. It has been estimated by Wohlers that 3D printing will generate over $21 billion in revenue, an over fourfold increase from 2015 levels by the end of 2020. It is very important to get the basic understanding of the landscape before investing in 3D printing and trying capitalizing on the expected growth it has to offer. Check out the following checklist that will assist you in getting started:
5. Understand the business model
Most importantly, get a strong understanding of the way the 3D printing company makes money which can differ significantly from one company to another such as 3D Systems (NYSE:DDD) and Stratasys (NASDAQ:SSYS) mainly operate a razor-and-blades model, where 3D printer sales fuel the usage and subsequent sale of higher-margin materials over a printer’s lifetime. However, Proto Labs (NYSE:PRLB), in contrast, is a 3D printing and quick-turn manufacturing service provider that lets customers get 3D printed and manufactured parts made on their behalf.
Although both business models are capable of capitalizing on 3D printing’s growth, they operate with totally different cost structures that drive profitability.
4. Estimate the market opportunity
It can be a problematic task to estimate a 3D printing company’s market opportunity. Approaching it from the perspective of a business’ ability to target use cases is one way. In general, the more uses that a 3D printing company can cater to, the greater its market opportunity.
In this situation, the market opportunity of 3D Systems’ is probably larger as compared to Stratasys’. This is because of the fact that 3D Systems has seven distinct 3D printing technologies in its portfolio to offer customers, including the ability to 3D print in metal, whereas, on the other hand, Stratasys only offers three technologies, all of which are plastic-based.
For a service provider like Proto Labs, its opportunity is directly correlated to the types of technology it adopts and the number of materials it offers customers.
3. Think through differentiation
A 3D printing company has to be differentiated for it to sustain a competitive advantage in the market, which can take on several forms. It could be an innovative technology, business model, process, specialization, or even a high barrier to entry.
The Carbon’s M1 printer, which claims to be anywhere from 25 to 100 times faster than anything before it, has been introduced recently and is one particularly differentiated example. Furthermore, the only way to get M1 is through an industry-first subscription model, which requires a three-year, $40,000-per-year minimum commitment. For this price, users get an internet-connected 3D printer (another industry first) that gets better over time through over-the-air updates, in similar fashion to how Tesla Motors releases software updates for its electric vehicles.
2. Size up the competition
A new competition has been invited due to the striking growth prospects of the 3D printing industry, which is capable of challenging the 3D printing company’s current competitive positioning. Hewlett-Packard (NYSE:HPQ), besides Carbon, is deciding on entering the 3D printing industry later this year with a homegrown technology that leverages decades of inkjet experience. It has been claimed by HP that its Multi Jet Fusion printer will be 10 times faster than top technologies on the market today. Arguably, since Carbon and HP are focused on the plastic segment, Stratasys faces greater competitive pressure from these entrants than 3D Systems, which has a more diversified business model outside of plastic-based 3D printers.
In short, the risk caused by the competition to a 3D printing company must be assessed on a case-by-case basis.
1. Understand the risks
The risks that have an effect on one 3D printing company might not have on another, which is very similar to competitive threats. However, there are risks that affect the 3D printing industry in general. Generally, it is vital to understand the risks that are specific to the company and the industry.
The current slowdown in professional and industrial demand that started in early 2015, and has affected virtually every company that caters to the space is one such “global” risk. In the recent times, in the second quarter, 3D Systems’ printer sales fell 30% year over year, whereas Stratasys’ printer sales fell 19%.
Another global risk is how a large portion of the 3D printing’s expected growth trajectory is based on the technology’s continued expansion into manufacturing uses. Despite the fact that 3D printing offers promise for use in manufacturing, it remains a largely unproven technology in this realm. In case 3D printing’s adoption in manufacturing uses struggles to gain traction, it could change the growth outlook of the entire industry.
The resulting step
Somewhere between bigger competition and upgraded capabilities, the 3D printing industry is likely to change in the upcoming years. It is expected that this change will possible make 3D printing stocks a volatile group for the foreseeable future. In the long run, these factors enhance the importance of continuously monitoring your 3D printing investments for material changes.
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