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A Strong Autodesk Looks Toward China, 3D

Posted on Tuesday, Mar 16th 2010

Autodesk (NASDAQ:ADSK) recently announced Q4 numbers that were up sequentially with less of a year-on-year decline. Revenues of $456 million fell 7% over the year but grew 9% over the quarter. EPS of $0.30 was a penny lower than the previous year’s earnings and grew 10% over the previous quarter’s EPS of $0.27. Analysts were projecting revenues of $432 million with earnings of $0.23 per share.

For the year, revenues fell 26% to $1.7 billion. EPS of $0.99 was also significantly lower than the previous year’s $1.95.

By segment, Autodesk’s 3D model-based design solutions revenues grew 10% over the quarter and fell 7% over the year to $134 million. Revenue from 2D horizontal and vertical products grew 13% over the quarter but declined 8% over the year to $213 million. Revenue from AutoCAD and AutoCAD LT products grew 9% sequentially and fell 9% over the year. Twenty-nine percent of revenues for the year and the quarter came from 3D design products, and revenues from 2D horizontal and vertical products fell 37% over the year.

Given the success of the 3D science fiction Oscar winner “Avatar,” Autodesk is seeing bigger opportunities for 3D animation and modeling in its media and entertainment business segment. The company recently announced new versions of its Digital Entertainment Creation software. The 2011 versions offer features that will help to speed up workflows and improve interoperability so that artists can maximize creativity and be more productive. As of the last quarter, Autodesk’s entertainment segment brought in 10% of total revenues. The global 3D animation market is expected to be worth $237 million in 2008 and is expected to have fallen marginally to $221 million last year. Analysts expect the market to cross $300 million by 2013.

During the year, the company launched Autodesk University Virtual to expand the existing Autodesk University learning experience to worldwide users. There were over 20,000 virtual participants during the year.

Autodesk is also expanding globally and has recently tied up with multiple Chinese firms, government departments, colleges and universities, and solution suppliers such as China National Engineering Research Center for Human Settlements, to jointly carry out research on China’s building information modeling (BIM) standard. Autodesk is looking to drive the application of BIM in China and to help evolve the BIM standard in the region.

But currency devaluations have hurt Autodesk. By region, EMEA revenues decreased 14% over the year in reported currency and fell 22% over the year on a constant currency basis to $188 million. Revenues in the Americas fell 2% over the year and revenues of $100 million in Asia Pacific grew 1% over the year. On a constant currency basis, Asia Pacific revenues fell 4% over the year. Revenues from emerging economies of $73 million fell 8% over the year.

Autodesk projects revenues of $420 million to $440 million for the current quarter with EPS of $0.18 to $0.23.

Research estimates the $5.2 billion U.S. CAD market to grow 11% annually from 2007 to 2012 to reach $8.2 billion. Autodesk is a leader in the segment, and with its strong product portfolio and a recovering economy, its stock is likely to climb. The stock is currently trading at $29.20 with a market capitalization of $6.7 billion. It recently achieved 52-week high of $29.43. This is a stock that I own, and am holding on to it.

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How is the P/E ratio of 118 justified for this stock?

Steve Klim Tuesday, March 16, 2010 at 6:58 AM PT

[…] A Strong Autodesk Looks Toward China, 3D | Sramana Mitra on Strategy […]

BBBLovers | Indicando blogs | dsxbrasil magazine Tuesday, March 16, 2010 at 8:48 AM PT

Steve, I think Autodesk is a TAM story. CAD is a very large and growing global market. And the entire market is moving from 2D to 3D, and moving away from complex, expensive products like PTC, etc. Autodesk is rather perfectly positioned to ride all the emerging market momentum in mechanical and architectural CAD, and to some extent in animation, although that is a smaller market. I believe, this is what accounts for the stock being called by some analysts as a Hold, and some as Buy/Strong Buy despite the seemingly expensive P/E.

Sramana Mitra Tuesday, March 16, 2010 at 10:37 AM PT