Autodesk: The Horse for the Infrastructure Decade

Disclosure: Autodesk is the third largest position in my portfolio

In 1982, John Walker, along with 12 other programmers, gathered $59,000 to found Autodesk. Today, Autodesk is ~$60 Bn market cap company.

More people probably heard about AutoCAD than the company behind the Computer-Aided Design (CAD) software application. Just three years after founding Autodesk, it came to the public market. Mr. Walker perhaps does not miss the IPO process:

“I did not enjoy writing the prospectus for our Initial Public Offering in 1985. Translating a clear statement of the company's goals and strategy into weasel words under a pressing deadline, in endless meetings filled with lawyers and accountants who argued with each other, billing the time to us pales, in my mind, with other avocations such as lying on the beach or juggling chainsaws.”

Walker resigned from Autodesk in 1994 and is perhaps now enjoying “lying on the beach or juggling chainsaws” somewhere in Switzerland observing closely a colony of ants. I am not kidding; Walker is deeply fascinated by ants, and when you know how resilient ants are, you would probably wonder whether Autodesk would be even more successful if Walker were still at the helm. Today, Autodesk is led by Andrew Anagnost who has been with the company since 1997 and became CEO in 2017.

The title (and disclosure) of this month’s deep dive clearly indicates my opinion (or biases) on the company. Given my money is on the line, I will highly appreciate if you disagree with my bullish tones and share your concerns/divergent views with me. I also want to acknowledge one of my acquaintances at Autodesk as well as @SouthernValue95, a very sharp buy-side analyst who was kind enough to help me understand some of the aspects of Autodesk’s business.

Here is the outline for this month’s deep dive:

Section 1 Autodesk business model: I briefly discussed Autodesk’s products, revenue lines, and overall business model.

Section 2 Autodesk TAM: I elaborated on the Autodesk’s TAM in AEC, Design & Manufacturing, and Media & Entertainment.

Section3 A compelling opportunity to convert noncompliant/legacy users: I have addressed three specific questions on this section: a) How big is this opportunity? b) Why is Autodesk likely to be successful in converting noncompliant users? c) Why does it make sense for users?

Section 4 Moats and Competitive dynamics: I explored ADSK’s moats in AEC and why it may give its competitors run for their money in design and manufacturing segment as well.

Section 5 Valuation and model assumptions: I explored the embedded expectations in the current stock price.

Section 6 Capital allocation and management incentives: Capital allocation and management incentives are discussed here.

Section 7 Final Words: Concluding remarks on Autodesk, and brief comments on overall portfolio.