Autodesk‘s (NASDAQ: ADSK) the company was founded on the sale of software tools to the architectural, engineering and construction (AEC) industry. Its original product, AutoCAD, was launched in 1982. However, since then the company has purchased and developed many products and is currently focused on growing its presence in the construction industry.
Much of this push towards construction software was the release of Autodesk Construction Cloud in 2019. This group of services is all about managing the workflow throughout the construction process and is (as the title explains ) integrated in the cloud. Recently, Autodesk added a new product to this suite called Autodesk Build. Here’s what investors need to know about the product and how it fits into Autodesk’s vision for the construction industry as a whole.
What is Autodesk Build?
Released earlier this month, Autodesk Build combines the tools of BIM 360 and Plangrid (two other Autodesk tools) to help businesses manage workflow and communicate between different parts of the build process. The argument is that with Autodesk Build, a business can keep all of their documents, communications, and cost analyzes in one place. Think of it like Drop box but specially designed for the construction industry.
A product like this is important because of all the different crews and types of workers that go into a typical commercial construction project. For example, an office building has owners / investors, architects, engineers / designers, general contractors and sub-contractors all working together to complete the project. Autodesk Build, in theory, saves time and money by keeping every person and information connected to a central platform.
Since Autodesk Build is a value addition to projects, Autodesk can charge a pretty penny for it. Subscriptions cost $ 100 per month or more depending on your document limit, making every new customer worth thousands of dollars for Autodesk.
How does this fit into Autodesk’s build strategy
Autodesk Build is crucial to business goals for the construction industry. With Autodesk Construction Cloud (I know product names are confusing, please indulge me) Autodesk wants to offer software tools to all stakeholders in the construction process. Autodesk Build is the glue that holds these tools together. For example, last year Autodesk invested in and developed a partnership with Aurigo Software, which makes software to help project owners manage capital expenses. Aurigo and similar tools are integrated with Autodesk Build, keeping all workers on one platform.
Still confused? Let’s simplify things. From an investment standpoint, all you need to know is that Autodesk wants to connect every part of the build process to save time and increase the productivity of its customers. That’s what all of these Autodesk Construction Cloud products are for. Over time, this should create a network effect throughout the construction industry. The more companies that adopt Autodesk Build, the more it convinces other companies to do so too, helping to retain existing customers and help Autodesk create a wedge around its business.
But what about the stock?
At around $ 305 per share, Autodesk currently has a market cap of $ 67 billion, a price-to-sales ratio of around 19, and a price-to-free cash flow ratio (similar to an earnings ratio) of around 45. It is expensive compared to the whole market. However, with these construction products and investments in other areas of the AEC industry, Autodesk has a clear path to consistently increase revenue while simultaneously increasing profit margins over the next several years and beyond.
Investors shouldn’t be worried about a high valuation here; they should be excited about all the growth that’s yet to come with this high margin, recurring revenue software business.
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