After peaking (split adjusted) on 31 Dec at US$39, Autodesk shares have slid slowly downwards, most recently in the $32 range. No surprise there: last year, shares had surged 3.1x in value; some drop-off is to be expected.
But today, ADSK dropped over $4 (14%) after Banc of America revealed its expectation that Autodesk would face slower sales growth. We tend to see the words "slower sales," but the emphasis really should be on "sales growth."
We're not talking negative growth, or flat sales, or shutting down the company. We're talking about an expected revenue growth of 11% for this year versus 28% for last year. When you're making $1 billion a year, another 11% is a lot.
Analysts figure the price will settle down at around $25. At the time of writing this, the last trade was $26.98.
Update
More from Banc of America, courtesy of CBS Marketwatch: they estimate the number of active stand-alone AutoCADs at about 860,000 -- nearly half of the 1.5 million previously guessed at. (And just 36% of the 2,368,000 described by Autodesk as the "Stand-alone AutoCAD-based installed base.")
Why is this a problem? "A smaller upgrade pool lowers the growth potential from adoption of 2D to 3D and vertical products...", says the Banc.
And why is this a problem? Autodesk has been telling financial analysts repeatedly that the company is going to be making more revenue-per-customer as customers upgrade from 2D drafting to 3D design over the next ten years. But if the pool of upgradable customers is smaller than thought, then ther company will have smaller revenue from upgrades.
At the time of updating this, the last trade was $27.58.
Autodesk confirms: "I can tell you that the B of A analyst included only ACAD standalone, commercial, upgradeable seats in his estimates. Because Autodesk does not disclose this information publicly, we can't comment further."
"Autodesk has been telling financial analysts repeatedly that the company is going to be making more revenue-per-customer as customers upgrade from 2D drafting to 3D design over the next ten years."
This prediction fails to take into account the proliferation of 3D into every aspect of computing, and the effect that will have on low- and midrange 3D CADD. Today, most 3D computing applications are dedicated to modeling things that we design - things that don't exist yet, and things that will never exist (what we see in movies like The Matrix). In ten years, I think the majority of 3D computing applications will be dedicated to modeling things that already exist, probably as part of some massive, universal, 3 dimensional, GIS-like geophysical data store, that will have broad use in numerous applications ranging from real estate sales and commercial advertising; FM/AC, to homeland defense and a variety of other infrastructure management applications.
Another factor their predictions fail to consider is the strain of competing solutions that are offering progressively better 3D functionality at steadily decreasing price points.
To put it simply, Autodesk has pretty much bet the farm on its continued ability to use its file formats and keeping DWG a moving target, as a means of keeping the cost of its legacy products (namely AutoCAD based products) artificially high.
Autodesk could very likely fall victim to the same "80% of the functionality at 20% of the price" syndrome that helped it become the number one PC CAD maker at the expense of CALMA, ComputerVision, et. al., whose products AutoCAD displaced in its early days.
Posted by: Tony Tanzillo | Jan 24, 2005 at 04:26 PM