Is the Altium Limited (ASX: ALU) share price a buy? The company held its annual general meeting (AGM) this week.
Altium is an electronics PCB software business that counts businesses and organisations like Space X, Tesla, Apple, NASA, Amazon, Google, John Deere, Microsoft, Disney and Honeywell.
What did Altium say at its AGM?
The company outlined its various plans for growth, particularly revolving around Altium 365.
Altium reminded investors that it is going through its 'Netflix moment' with a hard pivot to the cloud. Altium is creating a new organisational structure separating its cloud business (Altium 365) from its 'software' business.
It's planning for the rapid development and adoption of Altium 365. It will reinvent Altium's transactional sales on a digital platform. The company is preparing a "major offensive" into the high-end PCB market through NEXUS and Altium 365 Enterprise, whilst also deeply integrating Octopart and Altium 365.
Another part of the plan is launching preparations for Altium 365 into China and bringing smart manufacturing to Altium 365.
Altium is still planning for market domination with a target of 100,000 Altium Designer subscribers. The company says that its Altium Designer business is the dominance engine, whilst the cloud platform Altium 365 is the transformation engine.
The ASX tech share said that the shift to the cloud is from a position of strength and does not force its customer to change their licensing model or the way they use Altium's existing software. But Altium 365 does provide future opportunities for direct monetisation from transaction fees on manufacturing or premium services.
Altium revealed that momentum is building with 40% growth of Altium 365 adoption since July. It has 3,739 monthly active accounts and 7,486 monthly active users.
In terms of a market update and outlook, Altium said that the 2021 financial year is a pre-vaccine environment for Altium's path to 2025, meaning the financial performance will be affected.
Altium said that macro environment remains challenging with a second wave of COVID-19 and uncertainty that has surrounded the US elections.
Management said that the first half is still being affected by COVID-19 but there are some signs of momentum coming back for the second half.
Altium confirmed the company's guidance range for the full FY21. Revenue is expected to be between US$200 million to US$212 million, which would be growth of 6% to 12%. It's also expecting earnings before interest, tax, depreciation and amortisation (EBITDA) to be in the range of US$76 million to US$89 million.
Is the Altium share price a buy?
The Motley Fool Pro service still rates Altium shares as a buy. At the current Altium share price of around $36 it's trading at about 56x FY22's estimated earnings.
Altium CEO Aram Mirkazemi spoke about the shift to Altium 365: "The implication of all this, is that the adoption of Altium 365 will implicitly change the nature of Altium's revenue from being old world perpetual and maintenance based to the new world of term-based and software as a service (SaaS). This means, as far as Altium's existing software revenue is concerned, Altium may very well be able to accomplish a Sun Tzu move in winning a war without fighting a battle."
Altium is expecting the change to significantly increase renewal rates for maintenance subscription and reduce church, which should have the most dramatic impact on revenue and the climb to 100,000 subscribers.
Mr Mirkazemi said: "Our software business is regarded as world class and is well on the way to achieving worldwide dominance, which will essentially give us a position of absolute market dominance similar to what has been achieved by Adobe or Microsoft software, for the electronics industry."
