The stock of design and drafting software company Autodesk Inc. (NASDAQ:ADSK) is currently trading at a price of $39.43 per share ahead of the scheduled release of its first quarter fiscal 2014 financial results after the closing bell on May 16. The consensus estimate for Q1 fiscal 2014 by the 20 research analysts providing coverage of ADSK stock calls for the company to deliver non-GAAP diluted earnings of 45 cents per share on revenues of $584 million, with current guidance for the second quarter averaging 51 cents per share.
Last year, Autodesk Inc. reported non-GAAP diluted earnings of 47 cents per share for the first quarter of fiscal 2013 on revenues of $589 million, which was in-line with the analyst consensus. Although the year-over-year performance of Autodesk's financial results do not adequately display it at first glance, when investors drill down beneath the surface they will discover the company is growing at a much greater rate than the figures immediately suggest. Notably, Autodesk has been on a prolific acquisition spree in the technology sector for the past several years as part of a strategy to grow its core business of enterprise drafting software and computer generated three-dimensional image design by integrating innovative smaller private startup companies into the company's portfolio.
As the benefits of this buyout growth strategy begin to manifest in the ADSK stock price and contribute to its financial results, investors looking to take advantage of the tremendous potential in this cutting edge technology company will be given a timely opportunity with Autodesk's first quarter fiscal 2014 earnings report and conference call to gain greater insight into management's vision of its future. Ahead of the announcement of financial results, taking a closer look at the company's acquisition strategy, new investment fund sponsors, analyst sentiment, and the recent performance of ADSK shares will provide potential investors with a clearer view of Autodesk's prospects.
Over the past two years, Autodesk has embarked on a growth strategy through buying out technology startups with a plan of forming a diverse complement to its central business model of enterprise design software. Thus far, the acquisitions have mostly been confined to three burgeoning sectors of high-tech: social networking, cloud computing, and mobile device technology. Autodesk CEO Carl Bass began implementing the acquisition growth strategy in 2011 after devoting most of his attention in his first five years as head of the company to trimming costs and reducing overhead.
Since the acquisition strategy began in 2011, Autodesk has spent over a half billion dollars on identifying and purchasing smaller technology companies. In 2011, ADSK bought 23 different companies for a total investment of $234.4 million for the year. Autodesk surpassed that amount in its 2012 acquisitions by investing $273.3 million to purchase 13 companies, which is reflective of the larger size of its buyout targets and the significant year-over-year increases in private startup valuations in the technology sector.
Notably, only five of the acquisitions were of companies based in the Silicon Valley area and the rest were distributed globally and throughout the rest of the United States. During the summer of 2011, the company purchased Instructables, which is a San Francisco-based online community dedicated to design collaborations and do-it-yourself projects. Around the same time in the summer of 2011, Autodesk also acquired Pixlr, which is a Swedish-based photo editing and sharing cloud computing service that will help expand ADSK's reach into the online imaging market. In the summer of 2012, Autodesk invested a reported $60 million to purchase the social video sharing application SocialCam that boasts over 50 million users on Facebook (NASDAQ:FB). This was a move that essentially amounted to paying around $1.20 per user to acquire the popular platform. The integration of the video sharing application will potentially enable users of Autodesk's computer aided drafting software AutoCAD, as well as its many other enterprise design products, to collaborate and share projects. In October 2012, Autodesk announced the acquisition of Qontext, which is a social media networking platform based out of India that enables enterprise users to collaborate on projects through the use of an integrated activity stream feature. All of the buyouts share a common thread in their potential synergies to enhance Autodesk's core enterprise drafting software business and eventually increase its market share through the fusion of the social networking aspects and the collaborative nature of the design projects undertaken on these platforms.
While these acquisitions may not deliver immediate monetization or be accretive to near-term quarterly earnings results, they do illustrate the commitment by CEO Carl Bass and his management team to expand Autodesk's market share and promote the growth of its core software offerings in the future through the explosive marketing potential of social networking, collaborative project storage capabilities of cloud computing, and increasingly omnipresent nature of mobile device applications. Investors can feel confident that management has a vision of its rapidly changing industry that transcends its central business of design software and is making the strategic moves to enhance this market.
Several prominent hedge funds are taking note of Autodesk's growth through acquisition strategy and making significant investments in ADSK stock. In particular, Autodesk Inc. found a true believer in Dinakar Singh, whose hedge fund TPG-Axon Management purchased a new position of over 3.1 million shares by investing $112 million in ADSK in late 2012. The enormous new stake by the $1.9 billion hedge fund makes ADSK the seventh largest holding of TPG-Axon, accounting for 5.78% of its portfolio as of the end of 2012. That position also makes TPG-Axon the largest stake in Autodesk among hedge funds, which is closely followed by a nearly 2.7 million share holding established by Citadel Advisors in late 2012. The significant investments by these hedge funds in late 2012 show the confidence of professional money mangers in Autodesk's growth strategy and financial prospects.
The weekly chart of ADSK shares shows that the stock successfully bounced off a test of its 50-day exponential moving average during the week of April 26 and is rallying toward a breakout to new highs for 2013. Autodesk shares are up 12% year-to-date and have gained 30% since they rallied off a double-bottom formation in the middle of November 2012. Analysts currently have ADSK rated as a hold with a consensus price target of $41.16, which means an encouraging Q1 fiscal 2014 earnings report and positive guidance could result in boosted price targets during the second quarter. For potential investors looking to increase or initiate a position in ADSK, the May 16 earnings announcement and conference call will provide a great opportunity to gain further insight into implementation of the company's growth through acquisition strategy and its prospects for the second quarter.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.