Autodesk holds a dominant position in the markets in which it competes and its stock is up more than
3,000% since it came public in the early nineties but is this stock worth buying today let's run it
through our investing frameworks to find out my name is Brian Feroldi and my name is Brian Stoffel
thanks to stockcard.io for sponsoring today's video all right brian autodesk might be a company
that not a lot of our viewers are familiar with so what does this company do autodesk is
now a software as a service company i say now because it was just a software company before
and they are the company behind computer aided design or cad software it's the basic thing
that you need to know if you want to work in engineering construction or architecture
and autodesk literally makes dozens of software products that are designed to help architects
engineers construction professionals or even media and entertainment professionals to do
their job when we look at the company's sales you can see where the important industries are
with architecture engineering and construction being the most important by far followed by their
standard core of auto cad again computer aided design but here's what's interesting if we look at
the growth oftentimes we see the smallest sections growing the fastest with autodesk that's not the
case and i actually think that's a good thing the growth from architecture engineering construction
is the fastest and the most important which is a really positive sign one thing that's worth
noting about autocad is that about five years ago it transitioned from a perpetual licensing
model to a software as a service model as a result its financial results during that period didn't
look too great however the company is now fully a software as a service business and its revenue has
been growing rapidly since it made that transition all right brian let's take this company through
the anti-fragile framework what do you see for the company's mission statement autodesk's mission
is to empower innovators with design and make technology those should be hyphenated so we know
what they mean so that they can achieve the new possible i don't love that the new possible design
and make technology using lingo in there it's not simple it is inspirational and it is optional not
my favorite mission statement either but they do have one time to check out this company's moat
do you think autodesk benefits from the network effect i do think that they have a network effect
and the company calls out one form of this network effect by the more customers and usage that they
have the more data they have which strengthens their developer ecosystem and i think that's fair
but it's also worth stating that this has become the standard industry product that engineers
architects need to use if you're graduating from college and you want to go into this field
there are other products available but it would be really silly for you to leave without knowing
how to use this so i think that there is a strong network effect that i give them full credit for
that's good to know i'm not as bullish on their network effect as you are i do think
it's there i actually think it's pretty darn weak however i think we're both going to agree about
this next one do you think autodesk benefits from switching costs absolutely if you and all
of your employees learn how to use a certain platform and you're using it for all of your
businesses why would you ever switch the company doesn't give specific numbers to let us know what
their dollar base net retention rate is but they say that it's in the range of 100 to 110
now we might be used to seeing other companies post higher numbers than that but we've got to
remember this is a very mature business that's been around since the 80s and those are solid
numbers this is the kind of software that takes years to really master and once you go through the
time to do so you're going to be loath to switch so i think this is autodesk's major competitive
advantage how about low cost advantage autodesk benefit from that no i don't think that that's
a major advantage uh neither do i how about any intangibles you have to give them credit for their
brand even i'm not an engineer and i know what autocad means and they're the ones who invented
it i think that that is fair how about counter positioning no i think that there's a lot of
competitors who are taking the same approach that autodesk did in fact you could argue that a few
years ago the company was susceptible to counter positioning itself but now that it's made the
software as a service transition that's no longer a threat moving on to optionality does autodesk
have it i think so and what i did to prove this was i went to go look at how many tools they have
and what you see on your screen here is just half of the products that i could fit on one page that
autodesk offers so yes i think they absolutely have optionality even if much of that has come
via acquisition that's an important point right there autodesk didn't create all of
these software products in-house like many other big software companies that has bought them but
in my mind there's no doubt this company has optionality built into it time to take a look at
the financials what do we see as of october 31 2021. well we see an upside-down balance sheet
where the amount of cash that they have is 1.8 billion and the debt is 2.6 billion that goes back
to again their acquisitive nature however that shouldn't cause too much concern because in terms
of free cash flow they're bringing in 1.4 billion over the past year like you said not my favorite
balance sheet but that huge amount of cash flow which is also growing very rapidly does give me a
whole lot of comfort are there any concentration risks to be aware of there's one to be aware of
there's a distributor tech data that accounts for 37 of the revenue outside of the united states so
it's not 37 of all revenue that being said it's a distributor not an end user so i'm not going to
ding them too much for that i'm not going to ding them for that either but it is good to be aware of
that concentration moving on to glass door does this company get good ratings they get great
ratings in fact ceo andrew anagnost is one of the top ceos on glassdoor for this year two thumbs up
wonderful glasses reviews employees clearly like working at this business are the founders still
involved no this is a picture of john walker he was one of the co-founders along with dan drake
but as we've said this company was founded in the 80s so they are not with the company anymore
that's not surprising given when this company was founded however i take a lot of solace in knowing
that the current ceo has been with this business for more than 20 years time for skin of the game
what do we see for inside ownership well here's the thing given that he's been there as long as
you've said i am a little bit disappointed insiders combined on less than one percent
of shares outstanding that's not super surprising given how old this company is and the founders are
no longer involved however if you add together all of the ownership that insiders have that accounts
to just 65 million dollars as of this filming that's not that much that's really not that
much and that's definitely a negative for this business is that inside ownership is not very high
not entirely surprising given that the founders are no longer involved in the age of this business
still disappointing before we show you our final scores we want to give a shout out to our channel
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join button and while you're at it how about you give this video a thumbs up all right brian let's
take it from the top what'd you get permission statement i gave them one out of two points
because it was not simple i think that that's perfectly fair how about remote so for the mode
i gave them full credit for the network effect full credit for switching costs and one point
for their brand value to bring it to five that's a very high mote score that is an extremely high
moat score and i think appropriate in this case how about for optionality i give them two and a
half look if they had created all those products in-house i might be willing to nudge it up to a
three for now two and a half if that media and entertainment business really takes off i'd also
be willing to up it to a three i think that that's completely fair moving on to financials would you
give it there so i gave it zero they have an upside down balance sheet but they also bring
in tons of free cash flow so i'm going to call it even fair enough concentration risk i took a half
point off again mostly just so i'm aware that that distributor tech data is going to probably
become more important as their international business grows all right how about for glassdoor
definite thumbs up they have great reviews founder no longer involved not the company's fault so they
don't lose any points it is worth knowing that the ceo here has been at the company for more
than 20 years so one thing to just keep in mind there and for ownership this is where they lose
a point i was disappointed even knowing that this company is as old as it is that they have
so little insider ownership all right we add all that together and we get an eight that is in your
robust category but at the lower end of the pool it is and it's not that surprising because this is
a software as a service company that's a lot older so the founders aren't involved they don't own as
much if if those two things alone were changed it would automatically shoot up to an 11. all right
time to take it through my investing framework financially i gave this company a 15 out of 17.
really liked what i saw there except for the debt promote i gave the company full credit
i think if you add in a light network effect a light brand and high switching costs that gets
you there for potential i only gave it a 13 out of 18. one reason why is this company is already
so profitable there's not a huge amount of room left for growth but i still think there is
operating leverage ahead of this business customer quality i gave it a 7 out of 10. customers are
very expensive to acquire but once they're on board their spending is essentially recession
proof for revenue quality got a 10 out of 10 for me the gross margin here is extremely high and
100 of the revenue is recurring for management and culture i gave it a 9 out of 14. i wasn't in
love with the mission statement or the inside ownership but besides that there was a lot to
like the stock is where this company really shined not only has the stock thumped the market moving
backwards but the company is using its capital to reward shareholders and it has a history of
blasting past wall street's estimates for the gauntlet i subtracted zero points you could
make the argument that that's too generous and i should knock some points out for concentration
but i'm comfortable with giving them a zero you combine all that together and this company got an
84 on my investing checklist i happen to think this is a very high quality business and on mine
it's still definitely within that investable range it just got an eight which is on the lower end but
as i said founder is involved a mission statement that works high insider ownership that brings it
to a 12. i don't think we're going to see those changes anytime soon but that'd be great if they
could all right brian time to hold ourselves accountable both of this is going to enter our
thumbs up portfolio on stockcart.io so i'm going to head on over to the antifragile portfolio
which is your thumbs up portfolio i'm going to click create a new order i'm going to type in the
ticker symbol which is ads k we're going to do a buy decision today's date is monday december 13th
when we're recording this this is a 269 dollar stock so we're gonna buy four shares and this got
a score of eight on your investing framework then we're gonna head on over to my investing portfolio
and we're gonna do the exact same thing and while brian is doing that we wanna remind folks that you
can see our portfolios and the performance for free on stockcard.io but we also encourage you
to become a member and by doing so keep track of your own portfolio while we're not concerned about
stock movements over the short term over the long run keeping track of yourself and keeping yourself
accountable is a great way to learn overall i think that both of us are pretty impressed with
autodesk the business even if it didn't score as well in your checklist as it did on mine this is
a stock that i personally own and have no plans to sell for many many years to come brian's out