Is There a 3D Printing Industry?
The answer to this question is no because there is no “industry” called 3D printing. Media articles should refer to the “3D printing space” or the “3D printing market” as opposed to the “3D printing industry”. This is because no standard industry classifications currently exist for 3D printing.
The classification of a company is relevant since companies in the same sector behave in a similar fashion and therefore will have correlated returns. A common way to classify companies by their primary business activity is to use the Global Industry Classification Standard (GICS). GICS uses a 4 level structure to classify companies; Sector (10), Industry Group (24), Industry (68), and Sub-Industry (154), and is the principal method of classification used in the investment community. Another classification is called the Standard Industrial Classification (SIC), which among other things is used by the SEC to determine the business activity of a company. SIC has no levels but instead just classifies each company into a single industry.
With 3D printing as an emerging technology, no industry classification, neither GICS nor SIC, uses the term “3D Printing”. However, investors can observe a correlation in the returns of 3D printing companies today, even with no formal classification. So what is the most suitable classification for 3D Printing companies since they have yet to be defined?
The current SIC code classifications for the main 3D printing majors, including the upcoming Materialise IPO, are as follows:
The current GICS classifications for the main 3D printing companies are as follows:
Since GICS is commonly used by investors, which GICS classification should be used for 3D printing companies? GICS classification is determined by examining the principal business activity of a company. While revenue is a major factor, earnings analysis and how the market perceives the company is taken into consideration as well. Since a company can only belong to one GICS sub-segment, there are four sub-segments existing today that could be considered as possible candidates for 3D printing companies.
Where would you place Materialise, a 3D printing company that recently filed for IPO? According to the GICS classification methodology, revenue is a major factor. In this case, the “3D printing software” segment represented only 19.6% of total revenues while the “industry” segment, on the other hand, accounts for 39% of total revenues. If we use an earnings analysis, we see the software segment achieving EBITDA margins of 38% with the industry segment at only 14.5%. If we took into account investor sentiment, many investors would describe Materialise’s business as a “3D printing services bureau” which would by definition fall under “Commercial Printing”. It remains to be seen how S&P chooses to classify Materialise. Unless 3D printing grows large enough to merit its own sector, companies will continue to be classified according to the GICS sub-segment that best defines their principal business activity which will lead to some confusion as to what these companies actually do.