Autodesk's (NASDAQ:ADSK) business was built on selling software tools to the architecture, engineering, and construction (AEC) industry. Its original product, AutoCAD, was released all the way back in 1982. However, since then, the company has bought and developed numerous products and is currently focused on growing its presence within the construction industry.
A big part of this push toward construction software was the release of the Autodesk Construction Cloud in 2019. This group of services is all about managing workflow throughout the construction process and is (as the title explains) built 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 at large.
What is Autodesk Build?
Released earlier this month, Autodesk Build combines the tools of BIM 360 and Plangrid (two other Autodesk tools) to help companies manage workflow and communicate across different parts of the construction process. The pitch is that with Autodesk Build, a company can keep all of its documents, communication, and cost analysis in one spot. Think of it like Dropbox but specifically built for the construction industry.
A product like this is important because of all the different teams 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 subcontractors who all work together to get the project done. Autodesk Build, in theory, saves time and money by keeping every person and piece of information connected to a central platform.
Since Autodesk Build is such a value-add to projects, Autodesk can charge a pretty penny for it. Subscriptions cost $100 a month or more depending on your document limit, making each new customer worth thousands of dollars to Autodesk.
How it fits into Autodesk's construction strategy
Autodesk Build is crucial to the company's goals for the construction industry. With Autodesk Construction Cloud (I know, the product names are confusing, bear with me here), Autodesk wants to offer software tools to every stakeholder 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 tools like it are integrated into Autodesk Build, keeping all workers on one platform.
Still confused? Let's simplify things. From an investment perspective, all you need to know is that Autodesk wants to connect every part of the construction process to save time and increase productivity for its customers. That's what all these products under the Autodesk Construction Cloud are for. Over time this should build a network effect throughout the construction industry. The more companies that adopt Autodesk Build, the more it convinces other companies to do so as well, which locks in existing customers and helps Autodesk build a moat around its business.
But what about the stock?
At around $305 a 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. That is expensive compared to the overall market. However, with these construction products and investments in other areas of the AEC industry, Autodesk has a clear path to consistently grow revenue while simultaneously increasing profit margins over the next few years and beyond.
Investors shouldn't fret about a high valuation here; they should be excited about all the growth left to come with this high-margin, recurring revenue software business.