The Altium Limited (ASX: ALU) share price has gone up by 20% in the 2021 year (to date). But what is the outlook for the 2022 year for the electronic design software business?
For readers that don't know, Altium is a software business that focuses on electronics design systems for 3D printed circuit board design and embedded system development.
The tech business is now shifting a growing number of its user base to Altium 365, its cloud offering.
At the annual general meeting (AGM), Altium said that Altium 365 adoption has beaten expectations and now has over 17,300 active users – up from 12,800 in August. Altium now has 15% of its total sales on cloud subscription and a further 40% is in transition to move to the cloud.
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Growth drivers
Whilst COVID-19 had been a drag on short-term performance, management said a few weeks ago that demand for its PCB design software has returned and is growing. Altium is expecting that the growth trend will continue "well beyond FY22, and indeed continue for the rest of this decade."
Altium's management also noted that the mega trend that is driving its growth is the Internet of Things, which has led to an "explosion" of smart products and a huge amount of electronics.
While that trend has been growing over the last ten years, it's now moving to a "whole new level", which is being driven by 5G, edge computing and the mass adoption of intelligent products. This could be a helpful driver of the Altium share price over time.
The large demand for electronics combined with a supply chain disruption caused by the global pandemic have resulted in a global electronics part shortage. This is creating favourable conditions for its goal of dominance and industry transformation.
Octopart is its electronic parts search business. It saw revenue growth of 42% in FY21 and the industry trends are also helping this division. Octopart has continued its strong growth in the first four months of FY22.
Altium is expecting to achieve revenue growth at the top end of its guidance, of around 20%, despite challenging conditions and despite what appears to be growing competitive forces.
The Nexar API was launched this year and unifies its API technologies across the board. Combined. Altium 365 and Nexar will "deliver fundamental change to the way that people collaborate and do business together".
Altimade will be launched in the first quarter of 2022. It will incorporate the delivery of a design to realisation experience.
Is the Altium share price good value?
In terms of the ratings, brokers are mixed.
For example, Citi rates Altium as a buy, though the price target of $35.40. That means the broker may be expecting the shares to drop over 10% over the next year, though it's looking forward to the launch of Altimade as well as the ongoing progress of Altium 365.
However, the brokers at Macquarie Group Ltd currently rate the Altium share price as a sell/underperform, with a price target of just $27.10.
