The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

Like Adobe before it, Autodesk’s shift to subscription-only software licensing/selling is turning out to be very beneficial.

Autodesk’s stock has rallied to a new 52-week high of $69.21 last month after it reported a big beat on estimated Q2 EPS and revenue.

The bullish sentiment over ADSK is clear evidence that many institutional and retail investors like that the company added 125,000 new subscribers in the second quarter.

Autodesk now has 2.82 million annual/monthly paying subscribers.

ADSK’s price is up more than 25% since my July 4 Buy recommendation. I reiterate my Buy rating for this stock because of its strong algorithmic forecasts.

I endorsed a Buy rating for Autodesk (ADSK) last July 4 based on its positive one-year algorithmic forecast. However, the stock has outdid my perception. ADSK posted a new 52-week high of $69.21 in less than 5 weeks after my previous Autodesk coverage. Nevertheless, congratulations to the people who profited from the +25% gain of ADSK.

Autodesk outperformed Adobe (ADBE) since July 4.

I mentioned Adobe because I believe that the big surge of ADSK last month is most likely due to Autodesk’s strong growth in software subscribers. Like Adobe, Autodesk’s stock received bullish approval from investors who liked the strong growth of its subscription-only software distribution system.

ADBE has surged since 2013 when it shifted Creative Cloud to a subscription-only licensing model. Likewise, Autodesk shifted to a subscription-only software distribution model for new licenses last February. Autodesk’s big beat of Q2 earnings and revenue estimate was highlighted by its continuing surge in subscribers.

As of Q2 Fiscal 2017, Autodesk reported that it now has a total of 2.82 million subscriptions to its software products. This is thanks to the addition of 109,000 new subscriptions during the second quarter. Autodesk’s new model subscriptions also increased by 125,000 to 692,000. This is a strong evidence that customers are liking the new subscription-only method of getting AutoCAD, 3D Studio Max, and Maya.

Why Subscription-Only Software Distribution Is Better

The main benefit of shifting to subscription-only software distribution is that it minimizes the impact of software piracy. We all know that Autodesk used to sell $3k-$5k perpetual licenses for its AutoCAD and other 3D/CAD software. As a result of this steep price tags, AutoCAD and 3D Studio MAX are among the most-pirated software programs.

Subscriptions allow business and individual customers a lower upfront cost to enjoy Autodesk’s industry-standard software like AutoCAD. Instead of shelling out $5,000 to own AutoCAD, a small design firm can instead opt for a monthly, quarterly, or annual rental of AutoCAD.

The basic $210 monthly fee of AutoCAD is reasonable even for third-world draftsmen, Architects, and Civil Engineers (who definitely rake in thousands of dollars in monthly service fees). This flexible software subscription system discourages people from using pirated copies of Autodesk software products.

(Source: AutoCAD)

Autodesk’s shift to subscription system also encourages its customers to remain loyal, and attract first-time buyers of CAD software. There are now cheaper alternatives to AutoCAD. Without a cheaper way to access AutoCAD, Autodesk’s flagship software product could have gradually lost its customers to much-cheaper alternatives. For example, SketchUp can be bought with a perpetual license for just $695. Autodesk will find it harder and harder to attract new customers if did not shift to a subscription-based model.

Letting first-time users try AutoCAD for $210/month could eventually lead them to sign-up for 2 or 3-year subscriptions. AutoCAD, first developed in 1982, remains the world’s industry-standard for 3D and 2D Computer-Aided Design software. The Worldwide CAD Trends Survey 2015 revealed that Autodesk’s AutoCAD, Inventor, and AutoCAD LT are among the Top 10 Most-Used CAD Software Packages. AutoCAD is number one.

(Source: Business Advantage)

Conclusion

Autodesk’s overwhelming dominance in 2D/3D CAD software makes it a good long-term investment. Sure, there are cheaper alternatives to Autodesk’s products. However, decades of dominance in CAD software has made AutoCAD the default university/technical college subject taught to engineers, draftsmen, and architects. This is due again to the industry’s preferential treatment for AutoCAD-proficient people. Job boards are full of AutoCAD requirements.

In the U.S., AutoCAD drafters have an average salary of $43,000. This is just for drafting school graduates proficient with Autodesk products.

(Source: Indeed.com)

Like Adobe, Autodesk is now getting propelled higher by its growing software subscription service. I predict that Autodesk will add another 125,000 or more new subscriptions for the next quarter. A year from now, I expect AutoCAD to have around 3.6 million subscriptions. Even freelance CAD Draftsmen who earned an average of $30k-40k/year will find it easy to pay the $210 monthly fee of AutoCAD.

My Buy rating for ADSK is again strongly based on its positive algorithmic forecasts from I Know First.

Furthermore, a check on my account at TipRanks revealed that hedge fund managers are adding more ADSK shares. It is more often profitable for small retail investors to shadow the moves of big-money managers. Hedge fund investors like ADSK right now. You should too.

(Source: Tipranks.com)

ADSK, has had a return of over 25% since the last time I Know First had sent a bullish forecast, regarding ADSK.

This Forecast was sent out to I Know First subscribers on July 3, 2016. To subscribe now click here