Autodesk Inc. (ADSK, Financial) is a global design software and services company that serves a wide range of industries. With the tech industry's shift to the cloud, the company seems to have more room to expand. Analysts are optimistic about the company's business and profitability based on recent business developments as well. Despite trading at above-average valuation multiples from a historical perspective, the company still seems reasonably valued due to its growth potential.
Increased infrastructure spending will be a blessing for Autodesk
Autodesk is a leading design company in the construction industry, offering software like Civil 3D, AutoCAD and Revit, which are some important tools for designing infrastructure projects. In 2016, the company began transitioning from a legacy software model of one-time sales to a software-as-a-service model of recurring revenue, which comes with an annual software license and cloud access. This change in its business model came at a good time as businesses around the world are keen on migrating to the cloud.
According to data from GI Hub, close to $3 trillion will be invested in infrastructure development this year, which suggests Autodesk’s products will remain in high demand.
Infrastructure investment - current trends and needs
Source: GI Hub
The trillion-dollar infrastructure bill passed in the U.S. last year is likely to boost demand for design software as well, and Autodesk already has drawn up plans to capitalize on this opportunity.
The ongoing digital transformation will be a catalyst for growth
Autodesk released fiscal third-quarter 2022 earnings on Nov. 23, reporting strong growth despite ongoing economic challenges. The company’s revenue increased 18% to $1.13 billion thanks to strong growth in new product subscriptions, expanding digital sales and higher subscription renewal rates. Billings increased 16% to $1.2 billion, while the net revenue retention rate reached a high of between 100% and 110%. The company reported strong revenue growth in all regions with an 18% increase in the Americas, 19% in Europe, the Middle East and Africa and 18% in the Asia Pacific.
To maximize the opportunity to make Autodesk more valuable in the design software market, the company is aggressively developing and improving its operations. As part of these efforts, the company optimized its capital structure in 2021 by issuing its first sustainability bonds, extended the loan maturity profile by nearly two years and lowered the weighted average cost of debt by 40 basis points. The company also plans to take steps to minimize its real estate footprint, with a goal of cutting the square footage of its facilities portfolio by roughly 20% globally.
The demand for Autodesk's products has significantly increased as the company provides tools to assist with digital transformation. Frech companies Bouygues SA (XPAR:EN, Financial) and Colas SA (XPAR:RE, Financial), along with Japan's Obayashi Corp. (TSE:1802, Financial), strengthened their commitment to Autodesk solutions in the third quarter, resulting in a considerable rise in monthly average users.
Autodesk continues to evolve and grow, becoming a 3-D modeling behemoth. The company's software portfolio is growing well, and it has also become a key player in the booming metaverse concept. Even though Autodesk’s products are currently being used to develop virtual products for construction, architecture, media and gaming, the company has the tools required for creators in other business verticals as well. In a bid to strengthen its leadership in the construction industry, the company announced the acquisition of ProEst in December. The deal will help the company provide cloud-based services for new construction planning and cost estimation.
The design software giant is also expanding its reach into manufacturing and is likely to benefit from the growing electric vehicle industry. In the third quarter, Ford Motor Co. (F, Financial) renewed and expanded its contract with Autodesk, signalling that its products are delivering the promised results.
Takeaway
Autodesk is no longer a young company, but seems to be well positioned to grow in the next five years thanks to favorable macroeconomic developments and the competitive advantages it enjoys in key markets. Trading at a forward price-earnings multiple of 52.31, Autodesk is not cheaply valued, but 2022 could be a turnaround year for the company from a stock market performance perspective as strong earnings growth is on the cards.
