Shares of drafting software giant Autodesk, Inc. (NASDAQ:ADSK) are up 31.1% so far in 2018, according to data provided by S&P Global Market Intelligence, as investors buy into the company's subscription financial model.
Autodesk has been in an odd position over the last few years, transitioning from a model that focused on selling customers a piece of software with a high upfront cost to selling on a subscription basis. In theory, the subscription model will make the company's results more predictable, but as the transition takes place we can see a drop in revenue and margins because of how sales and research and development expenses are accounted for.
What we've seen in 2018 -- and what investors are excited about -- is the fruit from the subscription transition starting to show. You can see below that in the last couple of quarters revenue is growing, gross margin is up, and net losses are starting to improve. That's been enough to push share prices higher in 2018.
Autodesk is a staple in industries from architecture to product design, and management thinks that gives it a total addressable market of $27 billion by 2020. It's that market size and the company's industry leadership that makes me think the stock still has a bright future. It may be tough to look past the losses and a whopping $30 billion market cap, but in tech you sometimes have to pay up for quality, and Autodesk is a company worth the price right now.