How does Autodesk make money? Why is the stock price so amazing?



Company Profile

I used Autodesk (ticker: ADSK) and Adobe (ticker: ADBE) as examples when explaining corporate moats in subsections 2-3 of the book “The Rules of Super Growth Stocks Investing”. About Adobe, you can refer to my two blog articles: “Adobe, a company with no strong competitors in its main business for a long time” and “How Adobe makes money? irreplaceable undocumented standard“.

Most people may not have heard of this company, but if you have an engineering background, it is impossible not to have heard of the name of this company. You should have used at least a few software from this company in your career, but You didn’t know they were Autodesk products. The special effects of the famous movie “Avatar” were made with Autodesk products. When the film was launched, the special effects of the movie swept the major awards, and most people might not know about it.

The importance of Autodesk

Autodesk has developed a series of must-have software in the engineering world, which is synonymous with engineering drawing, 3D, and simulation. Its status is like the irreplaceable status of Adobe Creative Cloud family products among multimedia practitioners for more than 40 years.

Engineering (whether electrical and electronic, civil, architectural, computer graphics, animation) is a very closed and highly specialized field of engineers, the daily working software that has won over decades of engineers’ critical, precise, professional, and meticulous tests (please note that this is different from Adobe digital media users focus more on creativity, space, and imagination. The user group of the two sides are very different), it is impossible to change it at all, and the important thing is that there is no alternative to replace Autodesk’s products.

Autodesk has another disadvantage. Its products are too professional, unlike Adobe’s main focus on multimedia. Almost everyone has heard of it, and many people have used it. But there are very few people who have used Autodesk products (although its products are very expensive), which is the fundamental reason why its market capital cannot surpass Adobe (table below).

Products and operation

What products does it have?

In order to write this article, I looked it up, and it has more than 100 famous products; this does not include discontinue products, plug-ins, or derived software that are rarely used. AutoCAD, 3ds Max, Alias, Inventor, Maya, Navisworks, Revit are some of the best known products. The following are its main product lines:

Product lineFlagship products
Architecture, engineering and constructionAutoCAD、Revit、Autodesk Construction Cloud (ACC)
Genetic engineeringAutodesk Life Sciences
A cloud-based design platform for mechanical, electrical, and manufacturing engineersFusion 360
Media and entertainmentFlame、Media & Entertainment Collection
RenderersAutodesk Raytracer; Mainly bundled with the products of many well-known manufacturers, such as NVIDIA (ticker: NVDA) Mental Ray and Iray use its products internally
Cloud rendering servicesAutodesk Rendering、3ds Max Cloud Rendering
Visualization tools3ds Max、ImageStudio

Diversify among regions

From Autodesk’s latest annual report, as you can see from below table, it’s revenue are evenly spread across the 3 geos. This proves Autodesk’s products are popular and give investors resilience during market volatility caused by geopolitics.

RegionPercent of Total Revenue

Business performance and market valuation

How is the business performing?

Year 2021Autodesk numberAdobe number
Revenue$4,386.4 million (+15.72%)15,785 million (+22.67%)
Gross margin91.68%88.18%
Operating margin16.93%36.76%
Net margin11.33%30.55%

Stock valuation

IndexAutodesk numberAdobe number
Share price195.84395.95
Market capital42.56 billion187.09 billion
Dividend yield0%0%

Long term capital return

Stock split

Its stock has been split four times since its listing:

DateSplit ratio
03/30/19873 for 1
10/31/19942 for 1
04/19/20022 for 1
12/21/20042 for 1

Why is the stock price so amazing?

The answer to this question is easy to answer: because it’s a specific piece of software that “industry” must use. The software industry has edge on valuation, and it has existed for decades; the company was established in 1982 and went public in 1985, a year earlier than Microsoft (ticker: MSFT), with high switching costs.

The most important thing is that it is the unwritten software of the industry, just like Adobe’s position in the multimedia industry, and Autodesk is used in more industries, mostly in high-value industries, so its products are expensive. In architecture, engineering drawing, 3D, and simulation, there are almost no substitutes, because many of its products are almost designed to meet the needs of industry customers and belong to a niche market (and Adobe multimedia products are widely used – note this big difference), no one wants to take the risk to enter this field. The power to raise prices without substitutes.

Credit: Wikimedia

How much has the share price gone up?

It has risen 245% in the past 5 years and 812% in the past 10 years; there are not too many US listed companies performed better than Autodesk by this two bunbers. Even in the long run; it has gained 3,187% over the past 28 years (see chart below), with an annualized return of 13.68%; the S&P 500’s annualized return over the same period was 8.65%.

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