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2 Stocks That Dodged the Tech Downturn Bullet

- By John Kinsellagh

Amid all the gloom and doom surrounding the recent tech sector rout, two companies have not only managed to dodge the tech downturn bullet, but also deliver sterling third-quarter results that demonstrate both are poised well for future growth.

Autodesk (ADSK) and Citrix (CTXS) are two companies that built on their traditional core business but reinvented themselves by dramatically changing their business operations into a software subscription service model that is based on the cloud computing platform. Both companies built on their existing customer base and extended the array of services provided in a hybrid computing environment. The change in their business strategies allowed each company to pursue new markets that have contributed to significant increase it shares prices.

Autodesk presents a successful picture of a company that completely changed its principal way of doing business and source of revenue by successfully shifting from a licensing business model to a cloud-based subscription model that can offer customers customized software and database services that extend the capabilities of their traditional products.

In order to appreciate the revenue potential from shifting to a more hybrid model that provides flexible and comprehensive cloud computing services, Microsoft (MSFT) stock is selling for around $103.37 per share. When it initiated its plan to establish a presence as a viable cloud computing provider, its shares were $26.78.

Autodesk traditionally had been a seller of computer assisted design (CAD) software that was sold to customers in various industries as a royalty or license-free product; once sold, the customer owned the software and the relationship was limited to servicing. Software licenses accounted for 60% of the company's total revenue as of 2013.

CEO Andrew Anagnost initiated a plan to convert the company's traditional customer base and expand its potential for revenue by selling its software on the cloud as a subscription-based service. The cloud-based strategy allowed the company to reach a larger customer base by making the software available to people who design and manufacture products, such as construction projects (bridges and roads), games and one of its original core clients, the movie industry. The appeal of the cloud platform for its CAD services was that it made it easier for those involved in construction projects to collaborate with each other.

The company's third-quarter earnings reflect the success of the strategy. For Autodesk the strategic revamping of how it delivers its product has led to a record $2 billion in fiscal 2018 revenue with guidance for $2.5 billion for 2019. Autodesk's share price has nearly tripled to $135.04 from $47 in 2015. Autodesk stock is up 28% for the year while S&P 500 index is down 0.5%. The company reported earnings of 29 cents per share on revenue of $660.9 million, compared to a 12-cents per share loss on revenue of $515.3 one year ago.


Citrix has redesigned its principal business by shifting away from its core services as a private virtual networking company into other service areas for companies that are in the middle of shifting from an exclusively client/server in-house IT model to a more flexible cloud database environment. Many companies currently use both types of computing platforms.

In order to help it achieve its goal of providing hybrid flexible cloud-computing as well as extending and complementing its virtual private network services, Citrix recently purchased Sappho for $200 million. Sappho develops software and applications for a hybrid corporate environment that allow employees to integrate and leverage the power of in-house client-server systems as well as the cloud into one seamless platform that delivers the information to mobile devices.

More and more corporations are finding the need to collate and deliver information from a variety of sources and convert that information into a user-friendly application that is easy to use, flexible and can be delivered to employees' smart phones as multiple applications.

This enhances productivity by providing employees with the power to use on-site network systems with traditional business applications as well as cloud service platform databases and deliver the integrated information to each person's phone or other mobile device. The employees would no longer need to sign on to multiple systems and interface with what can be cumbersome and frustrating corporate IT systems.

Citrix reported earnings of $1.40 a share on revenue of $732.5 million. As a sign the company is successfully shifting to a cloud-based computing platform or service provider, subscription revenue increased 37%, year-over-year to $112 million and accounts now for 15% of the company's total revenue, compared to10% a year ago. Citrix stock is up 21% for the year.


Disclosure: I have no position in any of the securities referenced in this article.

This article first appeared on GuruFocus.