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69 calls (110k) on PRLB (Protolabs) - Part 1, Qualitative analysis by starwarz

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· @starwarz ·
69 calls (110k) on PRLB (Protolabs) - Part 1, Qualitative analysis
IMO PRLB is going to absolutely eat alive the machine shop industry in the next few years. Here's why

**What is Protolabs?**

Protolabs is a next generation machine shop. They take customer orders and then cut metal, print plastic, apply finishes etc. to spin parts back. Right now they are too pricey for production runs, but they serve the prototyping demand fairly well because they have insane turnaround times. They claim to be able to ship parts same day as they receive the parts for quotation. I've never seen that in the times I've used them, but generally you can get a lot of metal parts at your doorstep within a week of file upload. IMO they have 1 competitor, Xometry. I'll try to do more DD into Xometry but since it's privately held, DD will be a little more difficult. I've used Xometry before and in general PRLB just seems faster and to offer more services but I do need to do more research into Xometry.

**Traditional machine shop supply/throughput limited by human labor**

Right now it takes a lot of machine shops weeks before they start to work on any order, and the reason for that is because they need to have a backlog of orders in order to be profitable. Protolabs has cut out as much of the need for human labor as possible, and they are basically aggressively trying to have machining as automated as possible. Right now if you want to cut any metal part with a machine shop, you have a person in the loop setting up the machines, dragging the part from machine to machine and pushing go, etc. Protolabs still mostly operates like this too, however by servicing the high mix/low volume market Protolabs is not supply limited by labor. At the moment the cost of ordering parts through Protolabs is prohibitive for production runs (lets say anything more than 5 parts), however as technology advances and the costs of doing things via automated manufacturing processes decreases, there will be exponential increase in demand and Protolabs will be able to scale because they do not operate under a business model that necessitates them having a backlog of orders.

Also, if inflation really does pick up and the cost of human labor increases, at some point we'll hit the part of the S-curve where increasing costs of traditional machining exponentially increases demand for PRLB. So PRLB benefits from 2 parts of the exponential increase in demand- decreasing costs by their own methods, and increasing costs by traditional machine shops.

**They have a process for identifying and integrating the latest in manufacturing technology**

In general I think 3-d printing and other advances to manufacturing will mean the end of traditional machine shop services (currently 20 bil TAM), but it will be difficult to figure out which 3-d print manufacturers will be the real winners because there is a big difference between cool technology, and technology that addresses actual customer demand. PRLB has regularly been incorporating new technologies for years, and so they understand better than anyone IMO what technologies are worth buying, and what gaps need to be filled in order to streamline a next generation machine shop.

**Their automated quotation system has dramatically cut down turnaround time**

This is their real bread and butter. Right now with a traditional machine shop, you send them drawings and CAD files and they sit on their hands for a week and get back to you with any manufacturing issues they found, then you fix those issues and then the machine shop waits another day or 2 and then gets back to you with a quotation. Since machine shops need a backlog of orders and won't get around to your order within a few weeks to a month anyways, this back and forth of a week to get a quotation really isn't the longest path of a part.

With Protolabs, you upload a CAD file and their system automatically gets back to you with manufacturing issues immediately after upload. You can then reupload and, if it passes their initial checks, you get a quotation instantly. This cuts down the quotation process from 1 week to an hour. Additionally, Protolabs wins here because they do not have a human in the loop, so the cost for them to quote jobs does not increase with demand = higher margins.

Once the new wave of manufacturing really takes off, even if traditional machine shops incorporate advanced manufacturing they're going to be way behind because now their week quotation is going to be the longest lead for a part. And that factor is going to be the final 🚀 that gets this party started and will ultimately give PRLB a big share of the [32 billion TAM](https://www.ibisworld.com/industry-statistics/market-size/machine-shop-services-united-states/) for manufacturing services. Currently PRLB does 434mil annual rev, but that revenue will exponentially grow at some point.

**Why I'm buying now**

At the moment I haven't come up with a good process for determining when these exponential increases in demand occur, however ARK hold's \~10% of Protolabs shares and IMO the main reason Protolabs has fucking tanked over 50% in the last few months is because people are convinced ARK has illiquidity risk in their holdings when they hold too much of a stock. 🐻 are absolutely fucking themselves shorting this shit - luckily for us it has given us a great entrance. I'm playing this with Dec calls because YOLO but honestly the liquidity in call options sucks so shares may be a better way to play this.

Future write ups will be me trying to baseline costs of production runs by uploading parts every few months to get a feel for how fast costs are decreasing, I'm thinking this process will give a better idea of when demand exponentially increases for PRLB

https://preview.redd.it/fx4ooubmudq61.png?width=1920&format=png&auto=webp&s=30394aba0dd17f2e5929a9cf4db1d3966b96c3d6
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@beefarmer ·
This is the first of many spacs breaking issue and dropping below 10$. Buyers beware.
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