Investing in 3D Printing Filament Companies

The most commonly used 3D Printers today utilize a technology called Fused Filament Fabrication (FFF) which creates 3D objects from a spool of filament that is melted and then cooled again as seen below:

FFF_Example
Source: http://sd3dprinting.com/

The materials used to create these filaments always have thermoplastic properties which means they become soft when heated and hard when cooled. Some investors are probably thinking there might be a “picks and shovels play” to be had here by investing in the companies that produce these filaments. Let’s take a closer look to see if this is the case.

The first thing we notice when we look at the filament market is that there are a lot of companies which sell filament and it comes in many shapes, sizes, and colors. Most of these companies are recent entrants to the market place and they almost all seem to sell direct through their websites. Some companies sell heavily discounted OEM replacement filaments showing that the large printer manufacturers like Stratasys (NASDAQ:SSYS) and 3D Systems (NYSE:DDD) haven’t been able to enforce the use of proprietary filaments and monopolize all of this consumables revenue. So if there are a great deal of new entrants and plenty of competition, there must be a huge potential market opportunity we’re looking at here, right? Surprisingly, it’s not nearly as big as you would think. A report by IDTechX shows the predicted growth of the 3D printer consumables market from 2013-2017 as seen below:

3D_Printing_Materials_Market

From the above chart, we can see that the predicted size of the 3D printing filament market (thermoplastics) was about $200 million USD. That’s just not a very big opportunity. To put this amount in perspective, Stratasys alone had over $650 million USD in revenue for the fiscal year 2014. IDTechX describes this as a “business as usual” scenario. So what if we have some serious growth? Even at a compound annual growth rate of 15%, this would only represent an $800 million USD market in the next 10 years. This just doesn’t seem like that big of an opportunity when comparing that amount to the overall 3D printing market opportunity in the next year, grandeur estimates of which will vary widely. Besides, feeding a spool of plastic through a heated nozzle and squirting it onto a platform is not the only method of 3D printing. Other methods use ultraviolet light to cure photopolymers which then form a hard substance. In the above chart, we can already see that photopolymers as a consumable surpass thermoplastics.

Conclusion

With the vast amount of startup companies trying to compete in this area, there will be constant price pressures which will require economies of scale to compete. Printer filament seems to becoming a commodity. But could a company come up with the most superior filament known to man and then command a premium price? It’s really hard to see that happening. A spool of material can only be made of thermoplastics given that’s how this process works. What’s the coolest type of 3d printing plastic you can think of? A conductive thermoplastic? One that is safe to eat out of? Made from biodegradable substances? Transparent and flexible? Made of carbon nanotubes? We’ve already seen all those and none are commanding meaningful price premiums. Our takeaway is that unless you are the owner of a company that produces superior filaments and has a genius marketing team, you won’t be able to take much advantage of the “picks and shovels” opportunity here. The potential market is just too small and there are far too many players.

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