In 2005 Autodesk (ADSK) was expanding 3D presence via acquisitions like Alias, leaving competition like Adobe (ADBE) in the dust. The story hasn’t changed as far as 3D is concerned. The fact remains, a large part of the design world (mechanical, architectural, construction, animation, etc.) still designs in 2D, and Autodesk is one of the prime beneficiaries of the movement from 2D to 3D that has been steadily progressing throughout the world.
Autodesk’s Q3 earnings ending September 30, 2007 totaled $538 million in revenue, an 18% YoY and a new record (and higher than analysts’ expectation of $536.1 million). Each of the company’s continent bases contributed with the Americas producing $218 million (up 12% YoY), EMEA revenues were $203 million (up 27% YoY), and Asia-Pacific totaled $118 million (up 14% YoY). Similar to many tech companies today, emerging markets accounted for $92 million or 17% of the total revenue and increased by 37%. Operating expenses were $381 million GAAP and quarterly net income totaled $85 million (versus $52 million YoY). Unlike the prognostication of critics, Autodesk saw no slowdown due to the housing/credit crunch despite the company's presence in the architectural design and construction software segments. Its Q4 guidance expects revenue of $581.8 million.
Adding to the value of its stock, Autodesk has a share buyback program to offset dilutions from employee stock programs, having purchased already 13 million shares and announcing a target of an additional repurchasing of 20 million more. With a current market cap of $11.6 million, Autodesk’s share price is currently just below $51/share and its 52-week high point.
As noted earlier, Autodesk is still rounding up the 3D market with a planned purchase of Robobat, a privately held French company for about $42.5 million (originally $33 million in September 2006) in cash. This will allow Autodesk increased specialization in analysis, design, and steel and concrete design software.
Adobe did offer a meager competition attempt when it produce Acrobat 3D in 2006, but it was akin to offering gold-plated trinkets on the street outside of Tiffany’s jewelry store. While Autodesk continues to lead the CAD [computer-aided design] design market, Adobe ended up hoping to be Switzerland with its Acrobat 3D packaged aimed at everyone. I am reminded of Aesop’s Fable with the father and son losing their supply-laden donkey trying to please everyone equally well.
In comparison, Autodesk continues to build its market share acquiring facets that improve its product line with a goal to continue controlling its target market of CAD engineers and designers. The current share price may be at premium currently, but the company is best of breed and has proven it improves shareholder value consistently.
Nonetheless, the dynamics of the CAD market are quite interesting, and at this point, increasingly moving in Autodesk’s favor. Earlier, Autodesk entered and conquered the 2D and mid-range 3D markets, with limited competition from Solidworks, now part of Dassault (DASTY). Five years ago, when I was working on the think3 turnaround, Autodesk’s mid-range 3D product was quite a bit weaker. It has not only gained ground, but it is also starting to get to the point where it can compete with the very expensive high-end 3D products. In fact, PTC’s ProEngineer and Dassault’s CATIA are potentially markets that are now within Autodesk’s realm of possibilities as those to conquer.
Meanwhile, in the 2D to 3D conversion, Autodesk continues to be one of the two biggest players, along with Solidworks. Also, as is obvious frm the numbers, their emerging market growth has been excellent, and I fully expect this to continue to be so, as India and China design and build lots of products, houses, and films using their software.
I like the company, its management (CEO Carl Bass has been around for a long time, and was groomed for the job by Carol Bartz, an industry luminary), the market dynamics, and as a result, am long on the stock.
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