Most folks who stay at the Four Seasons hotel in Baltimore will focus on the amazing harbor view.
After all, sitting right on the waterfront, the luxurious hotel has rooms with floor-to ceiling-vistas of the port, the yachts and the restaurants nestled along the way.
But when I was there two weeks ago, I opened a second set of curtains in my 9th-floor room and had a great discovery experience – and this one means big money for savvy tech investors.
Here’s the thing. Looking out the right side of my room, I saw a giant construction crane that must have been 30 stories tall.
And then it hit me. Just about every city I visit these days is a beehive of building. From apartments and condos, to office towers and business parks to roads and bridges, America these days is in the business of building.
We’re talking a market that’s worth at least $800 billion, just in the U.S.
So today, I’m going to reveal a tech leader that’s ramping up to cash in on the construction boom. And is poised to hand us outsized profits…
The Construction Is Everywhere
When I say construction is going on everywhere, I’m in no way exaggerating.
That’s particularly true of the Bay Area, where the tech boom has the economy – and contractors – working overtime.
Just as one example, the new Salesforce.com Inc. (NYSE:CRM) office tower opened last year in San Francisco to rave reviews. Standing 61 stories tall, the building is a modern architectural marvel that cost $1 billion.
I actually can’t tell you how many other projects are in the works in the Bay Area. But I can tell you that whenever I drive in downtown San Francisco, Oakland or San Jose, I have to maneuver my car to avoid construction traffic.
I am far from alone…
Consider that the forecasting firm Dodge Data & Analytics pegs the value of construction starts this year at $808 billion. That figure includes homes, apartments, factories, utilities and public works.
Now then, many investors might be tempted to play this massive market by buying stocks in construction firms or heavy equipment makers.
But we’re not most investors. We live by the adage that the road to wealth is paved with tech.
That’s why it’s so important you know Autodesk Inc. (NASDAQ:ADSK) is becoming a great play on the nation’s building boom.
This is a firm that years ago blazed a trail in complex software vital to making a wide range of products around the world. It’s stayed at the forefront ever since.
The company cuts its teeth in a field known as CAD/CAM. That’s short for computer aided design/computer aided modeling. Among other things, its software provides very complex 3D views for product designers.
Autodesk has remained a favorite among architects for many years. Now, it wants to create a value chain that extends from the drawing boards right down to the construction workers using iPads on the job.
The firm seems very committed to growing the platform, having made two mergers in as many months to build out this part of its franchise.
Last December, it paid $875 million net of cash for PlanGrid, a leading supplier of construction productivity software. And early this year, Autodesk bought BuildingConnected, which is focused on pre-construction planning, for $275 million net of cash acquired.
Moving to the Cloud
In the past few years, Autodesk has re-written all of the ways it does business from the ground up, as every process has been digitized. That helped lay the foundation toward a fully cloud-based platform, where staff and clients alike can share all key documents.
In fact, all of the building design features have also gone fully digital, to a platform known as Building Information Modeling (BIM).
This is an intelligent 3D model-based process that gives architecture, engineering, and construction (AEC) professionals the insight and tools they need to more efficiently plan, design, construct, and manage buildings and infrastructure.
Plus, fully harnessing the cloud opened the door to a key sales shift. The client base has been prodded to migrate from one-time license fees into a monthly subscription, known as Software-as-a-Service (SaaS).
That approach represents a truer cost of all of the features that Autodesk clients tap into each month. And for the firm, it also means a lot more revenue per client.
For many years, Autodesk was sold through tech consultants and advisors to property owners and developers. Yet in the past decade, the developers themselves have grown so massive that a direct relationship now makes much more sense.
Let me give you an example. The Related Cos. is building a new neighborhood on Manhattan’s West Side, called Hudson Yards. This 28-acre parcel will hold dozens of new skyscrapers and cost $25 billion to build.
By working directly with a firm like Autodesk, touch points – and new sales opportunities – go way up.
Embracing a cloud-based digital transformation, the change in the revenue model to SaaS, and the move to work more closely with major clients, is bringing a major payoff. Autodesk’s fourth quarter annualized recurring revenue (ARR) shot up by a stunning 34%, to $2.75 billion.
And adjusted earnings rose an equally impressive 34% to $312 million last quarter. That was around 10% ahead of forecasts.
A Bold Turnaround
To be sure, Autodesk had experienced some growing pains as sales had flattened out in recent years. In the summer of 2017, Andrew Anagnost was named the new CEO. He quickly laid out a bold two-year plan to drive strong growth and profits.
Those turnaround efforts are now really starting to pay off. Look for sales to grow 25% in both 2019 and 2020. And per share profits of just $1 a year ago should soar to $5 a share by next year.
Part of that growth is coming from the firm’s new eStore, where clients can more easily road-test key new software features before buying. Sales at the eStore are rising at a 50% clip.
Even Wall Street sees the value here, as shares have moved up to all-time highs, a very bullish sign.
As urban cores across the globe continue to expand, the demand for new skyscrapers and other buildings will only strengthen.
And that means we can ride this trend with our investment Autodesk for many years to come.
The 5G Cash Rush
Now, another major tech trend that’s set to create a mind-boggling series of opportunities for the right firms. I’m talking about the massive shift that’s underway to super-fast 5G wireless networks.
Fully $12 trillion is at stake here. For starters, we’re talking about billions of Internet of Things sensors that will be created with 5G in mind, or the advanced cognitive services that will enable humans to interact with each other – and with machines – anywhere, and at any time.
Without 5G, none of this will be possible. And it all starts with what I call “M-Boxes.”
Cheers and good investing,
Michael A. Robinson