EUR 850.00 For Business Accounts Only

Morningstar | Dassault's Wide Economic Moat Results From High Switching Costs and Network Effects

The increasing complexity of business has led many firms to seek out an efficient way to operate and align processes properly. Dassault's product life cycle management offerings have been a benefactor of this secular trend, and we believe the company's market-leading PLM portfolio (3D CAD, PDM, and digital manufacturing) will continue to attract widespread adoption among traditional and emerging industries.We think Dassault's wide moat, which stems from high switching costs and network effects, will uphold the company's leading position in PLM software over the long term. The company's flagship PLM products are the driving forces behind the company's success. We believe Dassault is very likely to retain its user base of about 10 million customers in the foreseeable future, given the time it takes to learn a new product, the risk of operational downtime, and the cost to implement a new solution.We expect the firm's flagship 3D CAD products, CATIA and SolidWorks, to remain industry-leading products. As cloud-based products become increasingly important, Dassault is positioned to take advantage of the social and collaborative aspects of the shift, while products such as Simulia, Delmia, Biovia, and Geovia expand the company's traditional addressable market. Management expects to double its market to $32 billion over the medium to long term, through its new 3DExperience platform, or Version 6, which should be a long-term growth catalyst.Internal development and acquisitions are expected to drive good growth for Dassault. In order to achieve such growth, the company recently made significant acquisitions such as Exa and CST. Furthermore, Dassault aims to expand in industries beyond traditional manufacturing through its new industry solution experiences. Such solutions help to increase user desirability of products for specialized types of jobs while simplifying the business process for users. While Dassault's goal of doubling its TAM over the medium to long term is ambitious, the company has successfully navigated such lofty expectations beforehand. As a result, we think Dassault's top line will grow in the high single digits over the next five years.