Autodesk Delivers, but Shares Expensive
Despite the wide-moat firm's strong positioning and growth prospects, we think shares are overpriced.
Autodesk (ADSK) provided a solid start to the fiscal year with revenue in line with our expectations and EPS slightly outperforming our outlook. Non-GAAP EPS moved into positive territory. The positive result marks an important turning point in Autodesk’s business model transition to subscription. We expect full-year non-GAAP profitability for the first time in a couple of years as the firm’s subscription model matures and as we continue to see significant momentum for the company’s subscription plan annualized recurring revenue, or ARR, and subscription plan subscriptions. We expect to see a notable decline in maintenance plan ARR and maintenance plan subscriptions as users shift to the new model, although positively, we expect the financial impact of this to have a more negligible influence over the next couple of years as this business shrinks to an insignificant amount. From a competitive standpoint, we remain convinced of Autodesk’s strong positioning and growth prospects. After the quarter, we maintain our $105 fair value estimate and wide economic moat rating. With shares at a premium, we’d seek a wider margin of safety before investing in the name.
For the quarter, revenue rose 15% year over year to $560 million. Reported subscription plan ARR increased 103% to $1.4 billion while maintenance plan ARR fell 31% to $725 million. The changes were the result of the firm’s ongoing business model transition. With recurring revenue at $532 million in the quarter, this figure now reflects a very high recurring revenue rate of 95%, up from about the mid-50% range in fiscal 2016. This shift represents Autodesk’s success in migrating users to new subscription plans. We continue to forecast a successful, wholesale transition of the remaining maintenance plan subscribers over the next few years. Net new subscriptions were 101,000 and we think there will be an acceleration through the year as we predict a total yearly net new addition of 522,000 subscriptions.
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Andrew Lange does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.