Stratasys (SSYS, Financial) is a manufacturer of 3D printers and 3D production systems for office-based rapid prototyping and direct digital manufacturing solutions. The company has lost over half its value in 2015, but its woes are far from over and I expect it to continue struggling in the foreseeable future. The company faces many headwinds going forward and is having a hard time growing sales.
In Q1 FY15, Stratasys stated earnings per share of $0.04, versus the consensus estimate of $0.03. The company reported revenue of $172.7 million compared to consensus estimate of $172.6 million. During this quarter, the company sold 7,536 3D printing and additive industrialized systems. The company reported FY2015 earnings per share of $1.20 to $1.70, versus the analysis of $1.39.
The strength of the U.S. dollar associated to foreign currencies impacted first quarter revenue by around $7.8 million on a constant currency basis. Non-GAAP net income for the first quarter was $2 million compared to non-GAAP net income of $20.6 million for the last year’s same quarter.
Product revenue decreased by 2% to $126.7 million versus the prior year quarter, while service revenue in the first quarter escalated by 112% to $46.1 million, compared to same quarter of previous year.
Non-GAAP gross margins declined to 54.1% for this quarter, versus the 60.9% for the prior year quarter. Operating expenses and net R&D expenses increased by 36% and 60% to $94.2 million and $24.4 million respectively.
MakerBot is struggling
MakerBot product and service revenue dropped by 18% in the first quarter over last year, driven by the overall market softness, as well as by the challenges related with the introduction and climbing of its new product platform, and its progressing distribution model. As a result, the company has proclaimed restructuring strategies for the business. The restructuring plan will put effort on enlightening the 3D product collection and enlarge its existence in the professional, education and consumer market places. As part of the restructuring plans, MakerBot cut approximately 20% of its workforce. The job cut at MakerBot does not signify a bright side for the consumer 3D printing market, and acts as another headwind for 3D printing industry.
Increasing competition
Hewlett-Packard (HPQ, Financial) is all set to enter the 3D printing market and the company has a large R&D budget that can trouble the existing market leaders. The company claims that its Multi Jet Fusion will be an striking target for manufacturing and professional markets, as it is 10x faster than today’s prominent 3D printers.
Accordingly, shareholders may have a genuine concerned that as soon as HP’s 3D printer's sale rise, shares of Stratasys will go down. At present, it is not clear that to what extent HP’s arrival in 3D printing could shake the reliable 3D printing firms, however it is certainly a very big risk that can't be ignored.
Conclusion
A strong US dollar and increasing competition will continue to pressure Stratasys in the coming months. The company is already facing problems with growing sales, and the impending arrival of Hewlett-Packard will further hurt the company’s sales. In my opinion, investors should avoid Stratasys it will struggle throughout the year.
