$ADSK was THE software to learn when I was growing up. My dad showed off CAD to me 20 years ago when his employer was building a textile factory back in India.
The learning curve and high switching costs, combined with $ADSK's iteration on old products and introduction new products to students for free produces a wide moat and strong momentum in the user base.
Informative podcast :
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In the short term, their move into subscription/cloud model, might provide much more predictable revenues.
Looking at growth numbers :
* Revenue grew from $2.2B to $3.8B at 5.6%
* Gross profits from $2B to $3.4B at 5.5%
* Free cash flows from $510M to $1.3B at 10%
COGS has basically remained flat ranging between 250M to 330M!!
Prices :
* $261 per share.
* $57B in market cap.
* $57B in enterprise value.
Establishing market position should be their number one focus. IMO, just like $ANSS, $ADSK should be valued on gross profit multiples than free cash flow multiples.
I like to buy pure play software companies at 10x gross profit multiples. But $ADSK trades at a premium : 16x.
The past 5 years, they have been growing at an accelerated pace of 12% because of growth in adjacent markets and also subscription/cloud revenue model.
They don't look very keen on using free cash flows to buy back shares. The hope is they deploy it to acquire wisely.
Base case 1:
Let's assume the same 5 yr growth into the future.
By 2026 :
They would generate $6B in gross profits.
Assuming 13x multiple, we get $78B in enterprise value.
That's 7% IRR.
Base case 2:
If we have to value $ADSK on free cash flows, their guidance is $2.4B for 2023. Slapping 25x multiple on that would get us to $60B in enterprise value. We are not losing money here.
* Management promises 16% revenue growth until 2023. Last 3 years, they delivered on their revenue guidances, there's no reason to believe they won't do the same again.
* They can comfortably model out revenues, since their transition to subscription model is complete.
All the promised revenue growth may come from :
* Monetizing freeloaders.
* Digitization of AEC (Architecture, Engineering & Construction).
* Acquiring new customers in Manufacturing and Media/Entertainment.
Northstar : To be one stop shop for manufacturing and construction.
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Every single time my wife opens an $ETSY package, she sees a handwritten note from the seller. She goes "Awww. That's so sweet" and she posts a picture of the note along with the item on her IG stories. The number of times she has done that with an $AMZN package : 0.
Thesis : Internet has democratized entrepreneurship. That's the theme of last 2 decades and it's going to be the theme for next 2 decades as well.
That's a change I guarantee will never revert. $EBAY $AMZN $SHOP $FB continue to contribute and benefit from this theme.
All of them have carved their niches and so has $ETSY. Every one I know dreams of running a self sustainable business and $ETSY makes it possible by giving sellers a increasingly global audience. It gives buyers a wider selection of personalized items.
"This is the key part of Warren Buffett’s philosophy that folks overlook. He talks a lot about return on retained earnings. Whether keeping an extra dollar in a business tends to result in an extra dollar being added to the market cap."
Good read!
"If you buy into a leveraged company & it deleverages over the next 10 yrs, your returns would be very poor compared to what you'd expect, they'd be much lower than the business. Let's say you are paying a 5% interest rate on your bonds/loans, you're paying like 4% after tax."
"If you have a company, and they take 3/4/5 years in a row of free cash flow & dedicate most of it, while you own the stock, into paying down that debt, it's the same as if they went out & invested in a project that returns 4% after tax"
"It's hard to think of anything that's as unprofitable as paying down debt. Paying down debt is a very very low return use of cash, except for companies that are super heavily indebted and have incredibly high interest rates."
$CVS 2021 guidance -->
Cashflow from operations : $12B
Capex : $3B
Adjusted operating income across segments :
* Health Care Benefits : $5B
* Pharmacy Services : $6B
* Retail/Long-Term Care : $6.5B
3 segments of almost equal size.
Cue the cross selling / flywheel slide.
After Aetna acquisition, leverage ratio is now at 4x. Goal is to reduce it to 3x by 2022.
"We've hit the 2021 run rate and the synergies are fully embedded in the business."
"Millions of new customers will engage with CVS Health for the first time through testing and vaccine administration services. We will use this opportunity to shape a health experience that demonstrates the value we bring."
A neat little trick that I've been following lately to save my 'Coffee Can Portfolio' from my myself & my impatience:
I've two brokerages; one for my 'Working Capital Portfolio' and other for my 'Coffee Can Portfolio'. Both are long term oriented, but serve different purposes.
Working Capital Portfolio :
The is where I initiate a starter position in a stock. I initiate starter positions for 2 reasons : 1) Gain further conviction. 2) Wait for a right price on a company with fantastic economics.
I log into this account about once a week.
Coffee Can Portfolio :
Once I've reached the maximum allocation for a particular investment in my 'Working Capital' account, I initiate a transfer of the security to the 'Coffee Can' account.
I log into this account, like never. This brokerage contains my retirement funds too.