3D Systems (NYSE:DDD) appears to be losing its grip on the 3D printing industry. The company is facing a growing number of challenges, from shaky financials to sluggish growth. The coronavirus has only exacerbated the problems facing 3D Systems and is putting far more pressure on the company.
3D Systems reported underwhelming Q1 results. The company missed expectations both on the EPS and revenue front with a GAAP EPS of -$0.17 and a revenue of $134.7 million. If 3D Systems underwhelms again in its Q2 earnings, which is coming up in a matter of days, the company will lose even more influence in the industry.
3D Systems has been severely impacted by COVID-19. The company has not experienced any significant recovery over the past few months unlike the rest of the market.
Losing Foothold in a Promising Industry
3D Systems has long established itself as a leader and innovator in the 3D printing industry. However, the company is rapidly losing its grip on the fast-growing 3D printing industry. 3D Systems has consistently reported negative earnings over the past few years despite the promise of 3D printing.
Profitability continues to be an issue for 3D Systems despite all the changes made to address this issue. To make matters worse, 3D Systems is not growing at a breakneck pace like it was in years past. In fact, the company has even experienced negative Y/Y quarterly revenue growth in recent years. Whereas a lack of profitability could be excused in a high-growth situation, it is highly problematic in a stagnating company.
3D Systems’ Q1 revenue declined 11.4% Y/Y. While this revenue decline can in part be attributed to coronavirus-related disruptions, 3D Systems has experienced negative quarterly growth for years now. With COVID-19 continuing to rage on with no clear end in sight, 3D Systems will likely experience growth issues for the foreseeable future.
After a period of explosive growth from 2010 to 2014, 3D Systems has clearly stagnated. The graphs below measure the company’s revenues (billions) over time.
3D Systems’ continual management changes also reflect the company’s growing struggles. In fact, the company just recently appointed a new CFO after CFO Todd Booth resigned less than a year after being hired. This CFO change comes shortly after the company just hired a new CEO. Such an unpredictable and volatile management structure is certainly not a sign of a healthy company.
Deepening Impacts of COVID-19
The coronavirus is only making matters worse for 3D Systems. The company’s printers and on-demand manufacturing businesses have been notably impacted by COVID-19. Decreased demand in important markets like dental and supply chain disruptions in countries like China have taken its toll on 3D Systems.
COVID-19 is also likely to significantly impact the company’s Q2 results. Given how unpredictable the coronavirus has been, there is no telling how much damage the pandemic will do to 3D Systems over the long term. On the positive side, COVID-19 has allowed 3D Systems to demonstrate the unique capabilities of additive manufacturing technologies.
The company has been able to leverage its additive manufacturing technology to rapidly manufacture personal protective equipment for frontline healthcare workers. This crisis has helped showcase the incredibly rapid and flexible nature of additive manufacturing compared to traditional manufacturing. Moreover, the pandemic also shows how vulnerable the global manufacturing supply chain is.
The Threat of Larger Players
Despite the lackluster performance of industry leaders like 3D Systems and Stratasys (SSYS), 3D printing as a whole is expected to grow at a rapid rate. According to Statista, the 3D printing industry is expected to grow at a CAGR of 26.4% from 2020 to 2024. The entire market is expected to be greater than $40 billion by 2024, which will undoubtedly attract far larger competitors.
Large companies like Siemens (OTCPK:SIEGY) are already starting to invest in 3D printing. Siemens launched its Additive Manufacturing Network last year and is looking to make a large impact in the 3D printing industry. A company like Siemens has far more resources than 3D Systems and could easily outcompete smaller players.
If the 3D printing market continues to grow at its current pace, it will almost certainly attract more companies like Siemens. At best, 3D Systems will either help lead the industry or be acquired at a premium by a larger company. At worst, 3D Systems will be pushed out of the market entirely. If 3D Systems is not able to turn things around, the company could very easily find itself in the latter situation.
As the 3D printing market grows, more established companies could end up dominating the industry.
3D printing is an incredibly promising market. However, it is uncertain which companies will eventually lead the industry. 3D Systems does not appear like it will be a 3D printing standout if current trends continue. The company consistently reports negative earnings and sluggish growth despite the fact that 3D printing is growing at a rapid rate.
Investors should be wary of 3D Systems at its current valuation $814 million. It is hard to imagine how 3D Systems will be able to compete in this promising industry when the company is still struggling on the profitability and growth fronts. It is unlikely that 3D Systems will be a long-term winner in the industry.
Disclosure: I/we 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.