Competition Clouds Outlook for 3D Printing Firms
We are maintaining our no-moat ratings and lowering our fair value estimates for 3D Systems and Stratasys.
After reviewing our outlook for
Stratasys and 3D Systems rely on a razor-and-blade model to drive deeper penetration into several end markets, including aerospace, automotive, healthcare/dental, and industrial manufacturing. With gross margins for printers having fallen below 30% thanks to a wealth of competing printers available in the consumer and industrial markets, both companies sell printers at or below their cost of capital while attempting to sell services and materials at higher margins, close to 50% and 70%, respectively.
Combined, Stratasys and 3D Systems command roughly 18% of the additive manufacturing total available market, which includes printer, software, and materials sales. However, we expect the market share owed to those manufacturers will erode over time. With the total available market growing from $7 billion in 2017 to about $45 billion in 2027 at a 20% compound annual rate, we believe 3D Systems and Stratasys’ combined market share will decline to close to 10% as new competitors and industrial stalwarts launch new printing systems and services. We believe 3D Systems is higher quality due to its clean balance sheet and slate of new products, but both names look fairly valued.
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