Comment by adventured | Hacker News Reader

Comment by adventured | Hacker News Reader

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It's much worse than that unfortunately.

Pre-tax income 2013: $310m on $2.3b in sales

Pre-tax income 2014: $279m on $2.26b in sales

Pre-tax income 2015: $83m on $2.5b in sales

Pre-tax income 2016: -$20m on $2.46b in sales

Pre-tax income last four quarters: -$544m on $1.95b in sales

Net income for 2013 was $247m, for 2014 it was $228m, for 2015 it was $81m. For the last eight quarters, it's nearly a negative billion dollars.

Net tangible assets 2015: $676 million

Net tangible assets 3Q17: -$1.3 billion

Their business is in trouble.

To make matters worse, they've got a $24 billion market cap. When times were good in 2013, they'd have been sporting a near 100 PE ratio with that market cap. Today it's particularly crazy, given they've had net negative growth over the last five years and they're losing a lot of money.

Fair value in my opinion is closer to 70% lower than what they're trading for right now. That's assuming 30 times earnings on getting back to $230m +/- in net income. In more normal times that 30 PE would be very rich for a zero growth company. A more skeptical look at them, would be they're worth 85% to 90% less than what they're trading for today, if their business continues to contract or remains weak and they struggle to get back to something more like $80m to $100m in net income.

Autodesk continuously touts that they are in a big transition from product sales to subscription and that huge growth is just around the corner. Do you discount those claims?

I don't see why it would be necessary to discount such claims. The claims are worthless. They're not worth considering at all, until they prove something (and right now they're running a substantial credibility deficit).

Ten years of zero net growth, and four years of declining profitability, should tell you everything you need to know about what's actually happening. They've spent most of their profits from the last decade on faking EPS growth with buybacks while their business was languishing. Now things are so bad, they're hatcheting their most valuable resource: their people.

I think they spent ~$188 million buying back their stock in the first quarter, while losing over $100m in operating income. They paid $85 per share for those shares. Around 80 times earnings, if earnings were still at the old 2013 levels.

It's financial suicide. They're driving Autodesk into a wall at high speeds, while destroying their balance sheet trying to keep the stock propped up with buybacks far beyond what they can actually afford based on present profitability and a reasonable outlook the next few years (which is why they're firing 13% of their staff).

Or put it another way. The cost of the share buyback announced last year could cover the cost of the 13% of workers that are getting fired, for at least two decades.

Autodesk long ago got into the IBM financial engineering business. The consequences of that are getting more unavoidable by the year.

> Or put it another way. The cost of the share buyback announced last year could cover the cost of the 13% of workers that are getting fired, for at least two decades.

Do you have any pointers on how to do this kind of financial analysis of a public company?

Frankly their change to a subscription model caused me to look for alternatives to the one product I use from them; Eagle CAD. It's really ticked a lot of people off.

I'm not sure how you can get growth out of subscriptions if their market is effectively saturated. It will prevent complete collapse, but growth?

The growth comes from transitioning from a costly model of hiring hundreds of slick guys in suits trying to convince customers to upgrade every year or so, to a simpler model of collecting credit card data and assuming customers are going to pay annually.

What happens after the transition is a more interesting question.

How do they manage such abysmal numbers after essentially monopolizing the CAD software market?

Looking at where their problems are on profitability.

R&D costs climbed by nearly $200 million versus five years ago (when their sales were higher than they are today). That increase is equivalent to ten percent of their sales now. By itself, that expense gain is nearly enough to wipe out their old decent profit numbers.

"Other" SG&A expenses climbed by nearly $200 million as well.

They added around 1,700 to 2,000 employees since the beginning of 2013. Going from ~7,300 to 9,000+. That's probably more than a $200 million total annual cost addition. Then contract sales by $400 or $500 million from those days, and you get a big net financial crush.

Simply put, they bet on growth showing up, which has never materialized. To put it into context, their sales for fiscal 2007 were $1.84 billion (versus $1.95 billion the last four quarters; so realistically zero growth for a decade (!)).

To throw some more onto the fire, they spent over a billion dollars buying back stock over the last 10-12 years or so ($447 million in 2006 alone). As with companies like IBM, that money obviously should have gone to improving the actual business rather than financial maneuvers (trying to fake EPS growth).

Worse yet, as of recently they were still at the faking EPS game (from a year ago):

"Autodesk, Inc. today announced a program to repurchase up to 30 million shares of the company's common stock"

http://www.businesswire.com/news/home/20160919005222/en/Auto...

So here's a company, bleeding red ink, whose balance sheet is badly eroding, sales are falling, and the people running the business are spending hundreds of millions of dollars to buy back massively over-inflated shares.

Architectural offices that still use cad, prefer ZWCAD, that is literally a Chinese copy of Autocad (with the same UI and even Lisp scripting) that you can buy for 10% of price. AutoCAD as a software is nearly done: Autocad 2017 is just a chromy version of Autocad 2007 despite their R&D efforts.

IMHO their product is nowadays REVIT (3DMax has fierce competition and is a lost battle). REVIT is a product that is still evolving and as such harder to copy/compete.

Seems premature. Sales of AutoCAD in 2016 were down, but still $600mm.

>Architectural offices that still use cad

Out of curiosity, what is the modern alternative to CAD used by architectural offices ?

BIM (Revit, Archicad and others. Even Sketchup is a BIM software nowadays).

https://en.wikipedia.org/wiki/Building_information_modeling

Isn't BIM an extension to rather than alternative to CAD?

In practice not so. The design process is different: in CAD you draw 2D like you would draw by hand. In BIM you don't draw, you build a 3D model. That model will contain all the data about your building (materials, dimensions, etc) and you can analyse it on realtime. With a traditional CAD system (BIM is still CAD - Computer aided design) all data must be gathered manually.

Despite BIM existing for a long time, hardware requirements and unpolished software didn't allow it to become a true alternative to traditional CAD until recently (10y ago?) when it become good enough.

Not as big as standard architecture but landscape architecture still seems to be stuck in CAD world and relying on plugins to do its dirty work. It doesn't work out so well with Revit. So there's a market that could use a good product.

The issue our office had was getting people to put in the time to go from CAD to Revit. We went big and got a BIM manager too to help with that but even he will confess he thinks the company doesn't really know how to utilize him.

BIM also seems to come with a certain mindset and philosophy vs CAD where you would just design, which might throw people off.

I still find it surprising, like others, that Autodesk would lose money give their market dominance and I assume that's why they're switching to subscription.

I think BIM's market is large buildings that you are sure will be built. All the rest I would go for CAD or some light BIM (sketchup) without blinking. Setting up a BIM project is time intensive and you have often to fight with the software when you want to go beyond the standards - that's the reason that architects don't 'fall in love' with it and the reason why BIM managers exist.

I don't think they monopolize this market. All the big industrial groups I've worked with were using CATIA

CATIA is Mechanical CAD right? AutoCAD is for architecture.

CATIA is the defacto industry leader in 3D CAD.

AutoCAD is the defacto industry leader in 2D CAD (given got some 3D support too). Though as more and more companies are moving to 3D CAD, they are looking for 3D CAD software built from the ground up for 3D CAD.

3D CAD is not just 3D, it's about parametric geometric kernel, CAM, CAE.

AutoDesk's "real 3D CAD" is called Autodesk Inventor. Competitors are SolidWorks, Solid Edge, Siemens NX, PTC Creo Direct/Pro, CATIA, FreeCAD.

Could that be they now have incompetent/malicious management siphoning money out via subcontracting companies (tunels)? $1B loss in 2 years is super suspicious.

Overall it looks pretty easy to explain, such that one doesn't need to leap that far.

For example, if you build your costs for a $2.4 to $2.5 billion sales run-rate, generating $80m in net income, which is what they did for fiscal 2015. Then, you drop sales to $2 billion instead (which is now where they're at), while not reducing their operating expenses (which actually went up slightly), you get a big fat loss.

I'd attribute their mess to a wildly incompetent management and board, most of which should probably be thrown out of the company immediately. The crazy stock valuation is the sole thing keeping that from happening now; reality will catch up to that however as it almost always does. When the hammer does come down on the stock, activists will start shaking the company for changes.

The 30 million share repurchase program they proclaimed a little over a year ago, is equal to about a $3 billion cost in today's stock price. They're losing a lot of money, and they have $1.7 billion in cash in the bank, with a negative balance sheet. Then consider the zero growth for a decade and the poor prospects for turning that around near-term. Management & the board are doing something extraordinarily egregious and a large number of Autodesk employees are going to get hurt in the coming years most likely (very tragically). I can't see a scenario where Autodesk doesn't have to slash a further 1/4 to 1/3 of their staff in the next few years (they have to cut deep to get back to even on net income). When the bloom comes off this stock market bubble, their $109 stock will be a $20 or $30 stock if they don't quickly find a way to drive growth again.

Autodesk continuously touts that they are in a big transition from product sales to subscription and that huge growth is just around the corner. Do you discount those claims?

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