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Hi, today I’m taking a closer look at Autodesk, the software company that I am familiar with from the decades old AutoCad.

People who use Autodesk products are mostly architects, engineers, manufacturers and people in the entertainment industry.

They have many different software programs for all sorts of purposes, essentially it is for designing things in the 3D world.

Industry

Now this company is already worldwide, so that will limit its expansion into the future. They generate about 60% of revenue outside of the US, so it’s more of an international company.

I like the industry a lot, because serving businesses like architectural companies are great because we will always need things designed and invented. Maybe AI will change how designing works, but since architecture and engineering are quite creative, I think that is far off in the distance.

Guru Investors

Looking at what the smartest, most successful investors are investing in is something I really like to do. I actually think it is negligent of me not to listen and study the best investors.

Stephen Mandel at Lone Pine Capital has Autodesk in his top 20 but has recently reduced his stake in the business. They might have thought the price got a little high.

William Von Mueffling at Cantillon Capital Management also has ADSK in their top 20.

Competition

Switching costs are high, they have a lot of pricing power.
A subscription is about $2,000 a year, which is very high for any software. Being able to price their software like this means they are the best, if they were not the best, they wouldn’t be able to do this.

Gross margins are about 90%, which makes them practically a money printing machine.

My opinion is that It would be very difficult for competitors to come along and dethrone them from their major markets because of all these competitive advantages.
But they do have competition.
Invision and Sketch Up are smaller niche products that have better market share than autodesk in particular categories But Autodesk still dominates the industry.

Management

Andrew Anagnost is the CEO, but isn’t the founder. Founder led companies tend to be better for the stock price, but with over 80% of his salary in stock, his incentives are in line with the stock price. That's good, as he is in the same position as the shareholders, which is important.

Fair Value

The lower the price, the more upside potential we have plus the less risk we take. So price is unbelievably important.
I like minimising my risk, so the best way to do that is to pay a price lower than fair value.

Predicting future growth rates is when things normally get difficult. And I can’t get on board with what the analysts think here at all.
Yahoo analysts think over 30% growth per annum over the next 5 years. Zacks analysts think 35%.

The last 5 years have been a little less than 10%. In 2018, management said they were aiming to hit $6 in free cash flow per share by the start of 2020. But they only achieved $4.3 per share.

Everyone is just too bullish on this company.

Opinion

This is still a good company. Competitive moats are really important, and I think Autodesk’s is great.
Their gross margins are fantastic as well.
If they can get that debt under control, and build up some stronger assets so that Goodwill number isn’t so large, then it would be far more attractive.

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