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Bullish on Autodesk

Posted on Friday, May 16th 2008

I wrote last month on it being a good time to buy Autodesk (ADSK). The stock was trading at $33 then and today post the announcement of its Q1 results is trading at $41 levels. A good 25% return in a month.

1yr ADSK

The Company reported revenues of $598.8 million, beating market expectations of $592 million and recording a 18% growth over the previous year Q1. EPS for the quarter stood at $0.50 compared to the market’s expectations of $0.44 and growing by 13.6% over the year.

They continue to do well in the emerging markets. Due to the economic pressures in
America, revenue grew by 4% to $191 million. EMEA revenue was $259 million, an increase of 25% and Asia-Pacific revenue was $149 million, an increase of 27%.

Segment wise, License revenue grew by 13% to $432 million and subscription revenue grew by 33% to $167 million.

Division wise, platform solutions and emerging business grew by 11% to $278 million, manufacturing solutions grew by 26% to $119 million, AEC Solutions grew by 29% to $129 million and Media and entertainment segment grew by 14% to $67 million.

Autodesk continued its acquisition spree by announcing the intent to acquire Moldflow Corporation for $297 million. Moldflow is a leading provider of simulation software used to optimize the design of injection molded plastic parts in molds. The transaction will enable a fully digital development process for plastic injection part and mold design. They expect the acquisition to add $30 million in revenue for the year 2009.

For Q2, the Company projected revenue of $600 – $610 million with EPS of $0.52 – $0.54. For the year 2009, Autodesk reaffirmed their outlook of revenue of $2.45-$2.50 billion, representing a growth of 13% to 15%. They expect Non GAAP EPS of $2.20-$2.30 for the year.

The continued with their good performance on 2D solutions recording a growth of 14%. Revenue from 3D solutions also increased by an impressive 37% to $146 million, contributing 24% of their total revenue. The latter continues to be one of the key drivers of Autodesk’s growth, since the world of 2D design moving to 3D design is a big trend working in Autodesk’s favor. 2D growth is also good, because that’s the prospect base for the 3D business.

With their results, I maintain my recommendation of buy on Autodesk. There will continue to be momentum in the 3D business, as large chunks of older 2D designers retire, and younger designers feel less resistance to working in 3D.

Also, one of my key factors for confidence in Autodesk’s execution ability is that they have handled succession planning very well, unlike many other companies I cover. Carl Bass was groomed for the top job over many years by Carol Bartz, now Chairman, and he is doing an excellent job shepherding the company.

The Mechanical CAD market also does not face the dynamics of price erosion that plagues its cousin, the EDA industry. In fact, yes, the high-end MCAD market is facing price-erosion due to the increasing capabilities of mid-range tools, but Autodesk, in fact, is the biggest beneficiary of this movement. (I have marketed MCAD, and am intimately familiar with the market dynamics.)

So, all in all, I am comfortable saying that I plan to hold on to my Autodesk stock for the long term.

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