3D Systems Corporation (DDD): The Big Picture on 3-D Printing

As far as consumer printers go, that was my big takeaway from the event, was it’s getting pretty competitive. Also, 3D Systems is really going all in there. I do like the company. They seem to have their head wrapped around it very well, and they’re creating a quality product that won some CES awards.

Isaac: Interesting. Makerbot is not a publicly traded company at this point, right?

Blake: No, not at this point, but I did talk to Bre, the CEO of the company. He didn’t say they were going to go public, but when I asked him I was like, “What does it look like for an IPO in the future?” and he kind of laughed and said, “It’s wide open,” so it’s not unrealistic to expect it.

He’s a great CEO. He’s great at marketing, and I don’t see why they wouldn’t because they need to get some capital, I would imagine, to compete with 3D Systems because they’re becoming quite the juggernaut.

Isaac: It seems like 3D Systems and Stratasys, Ltd. (NASDAQ:SSYS) are both buying up a lot of the smaller players, so if you want that rapid growth and you want to be exposed to all the different aspects of 3D printing, you do need to have that access to capital, I think, going forward.

Blake: Yeah. Stratasys, I spoke to them at the conference. I asked, because they don’t have a consumer printer, and I talked to a technology engineer with the company. He mentioned that it’s not a market they particularly would like to get into, but they’ve realized they need to be in there.

He used an analogy with Canon. Canon Cameras, they have their really high-end models where they make a good margin, and then they have the low-end ones as well. He used that analogy to say Stratasys would need to have a low offering, otherwise you’re missing out on exposing yourself to that portion of the market that may translate into upselling into the higher-margin products later on.

It looks like Stratasys probably will be getting into that, I would predict, if I’m going to make a prediction there. Overall, hypercompetitive; it’s kind of a dicey sector to invest in right now, I would say, just because there’s only two options at the moment.

Isaac: OK. To drill down on that point a little bit further, there’s a couple things as an investor, especially a casual investor; I want to be well aware of what the business model is for the company. It sounds like it’s a razor and blades model, a lot like Gillette back in the day. You sell the printer, and then you sell the materials.

Blake: Yeah, the refills.

Isaac: Great business model; I think you can explain that on a paper napkin over lunch with your friend. The other thing to look at is, “Can I understand the business?” or “Can I interact with the business?”

You mentioned a couple of these are consumer-facing businesses, so there’s that ability to see exactly what they’re doing behind the scenes, as opposed to just believing in this hypothetical concept that’s going to play out.

The third thing is valuation. If you look at these companies right now, are the expectations a little bit high when you have valuations that are perhaps 100 times earnings?

Blake: This depends on your investing discipline. If you look at a P/E ratio on Stratasys or 3D Systems when they were around 100, their companies are growing revenues with acquisitions at very high rates, but not near 100%. Then you’ve got to say, “That premium I’m paying over the growth rate of the company, is that intangibles as far as superior management? Is it opportunities in a game-changing industry like 3D printing,” where in the long term you could see huge, phenomenal things here?

When you are investing, you need to be aware of what that premium is coming into play, but when you try to rationalize stuff, that’s when you’ve really got to pay attention. “Why am I rationalizing it? Why am I paying 50 times earnings, what normally I would pay?”