Autodesk Jumps, Gets One Upgrade, But Analysts Largely Stay Neutral, Autodesk (ADSK) was up 10% at recent check: While the shares fell after the company’s disappointing guidance after hours Thursday, the market seems to be embracing the company’s second-quarter beat.
The report garnered one upgrade of the stock, by B. Riley & Co.’s Dan Cummins: “We are upgrading ADSK shares to Buy from Neutral and raising our price target to $42.00 from $38.50 previously, following the company’s positive July quarter results (revenue in-line, $0.03 EPS surprise) and indications from management that a more or less full shift to a subscription revenue model is just ahead. The company will host an investor meeting in San Francisco on October 2, and provide details on its plans. Although we are cutting our estimates, we think investors will appreciate the reduction in expectations during a period in which the business model is likely to strengthen, in terms of product appeal to customers and management’s visibility into near-term results. End market conditions and company specific issues improved slightly in the July quarter (e.g emerging markets and major account results rebounded), and we believe Autodesk can translate net firmer global macroeconomic conditions into better execution and results in the near-term.”
Other analysts were mixed but mostly cautious, with many looking to the company’s October analyst day for more clarity.
Canaccord Genuity’s Richard Davis maintained a Hold rating but lowered his price target by $3 to $38: “Autodesk’s revenues shrank due to worldwide slow economies and some purposeful decisions on selling into the education market. While we certainly understand macro headwinds, the fact is that higher valuations go to firms that control their destiny. To its credit, Autodesk has begun to make progress in this direction – adding suites, disruptively priced PLM, and nascent cloud design offerings. The only problem is that these efforts will take time, perhaps more than a year, to show material impact. We hope to someday upgrade our rating on Autodesk, but we need to have some degree of confidence that 1) our estimates won’t be coming down further, and 2) we can make a credible case that we can see a path to revenue or bookings growth of at least 10%.
Citigroup’s Walter Pritchard maintained a Neutral rating and $36 price target: “Stock is going to run into Oct. 2nd, whether it makes sense or not — We expect the stock will trade higher on the headline of “business model transition” as investors simplistically overlay the ADBE chart (+60% since announcement 11/09). We expect ratable revenue will move beyond 40% and this could help the stock’s multiple. It remains to be seen, in our view, how the company can drive dramatic change in the financial model, given the current starting point and commentary so far. Meanwhile, investors are ignoring deteriorating fundamentals as Q3 guide was lowered (not business model transition).”
Credit Suisse’s Phillip Winslow maintained a Neutral rating and $35 price target: “Autodesk also announced that management would provide more detail about the impact of the introduction of ratable revenue streams at its Investor Day on October 2nd. Although many investors have tried to compare the potential benefit to Autodesk and its stock with the positive impact from Adobe’s transition to the Creative Cloud, we would not expect an uplift to average revenue per user similar to Adobe’s transition. Specifically, Autodesk has offered subscriptions that can be purchased with a new Autodesk software license for many years (which currently account for 44% of revenue), and we believe that more than 70% of users are already on a subscription program. Autodesk appears to be offering these newer ratable revenue license models as options to clients in addition to the current perpetual license model, which compares with Adobe’s forced migration. Therefore, we would expect Autodesk’s revenue to benefit from (1) monetizing new cloud-based add-ons/offerings and (2) expanding the company’s user base via rental license offerings to be less dramatic in terms of the incremental growth potential as compared with Adobe’s transition to a ratable subscription model.”
MKM Partners’ Israel Hernandez maintained a Neutral rating and $41 price target: While the announcement that Autodesk will be accelerating its model transition to the cloud will be viewed favorably by some investors, the fact remains that Autodesk has yet to see any meaningful positive uplift from the macro recovery, leading to another downward revision to estimates. While the cloud shift will change the conversation away from another guide down, we would like to see more evidence of tangible fundamental improvement in the business before getting constructive on the name. We now forecast FY14/FY15 non-GAAP EPS of $1.76 and $2.00 vs. prior $1.94 and $2.25, respectively, though these estimates are preliminary and likely to change as we learn more about the model change and impact on financials at the October analyst day.”
Pacific Crest’s Brendan Barnicle maintained a Sector Perform rating: “Even with our estimate cuts, it is likely that Autodesk will still be able to maintain $2 in EPS next year, which should provide some downside protection. Given the company’s virtual monopoly and market leadership, it is unlikely that ADSK would decline below $25. However, we are not confident that this will be the last cut to Autodesk’s estimates.”
RBC Capital Market’s Matthew Hedberg maintained an Outperform rating and $50 price target: “Under a backdrop of low expectations, Autodesk reported better-than-expected results which were attributed to strong Suites and AEC performance. Specifically, Suites continued its strong performance growing 18%, accounting for 34% of total revenue and provides a 20%+ uplift to ASP. By segments, AEC grew 9% while the other segments declined including Platform Solutions and Emerging Business that was down 9%. Geographically, APAC showed solid growth at 4% cc as global conditions improved in Japan and China while EMEA is still lagging.
The primary focus of the call centered on their pending model transition from a perpetual license/maintenance model to a more recurring/ratable, SaaS/rental model. Management indicated they are happy with early results/feedback and expect the transition to happen faster than previously predicted. Although the migration won’t be forced, management expects the “vast majority” of revenue will be ratable in a handful of years. Additional details were thin as management pointed investors to their upcoming analyst day on 10/2 where they will likely walk through the transition in more detail including revenue and margin trends, flexible pricing options and key metrics to measure the progress of the transition. Although guidance came down, we believe shares should react positively to the news of an accelerated transition and would continue to buy shares into their analyst day.”
The report garnered one upgrade of the stock, by B. Riley & Co.’s Dan Cummins: “We are upgrading ADSK shares to Buy from Neutral and raising our price target to $42.00 from $38.50 previously, following the company’s positive July quarter results (revenue in-line, $0.03 EPS surprise) and indications from management that a more or less full shift to a subscription revenue model is just ahead. The company will host an investor meeting in San Francisco on October 2, and provide details on its plans. Although we are cutting our estimates, we think investors will appreciate the reduction in expectations during a period in which the business model is likely to strengthen, in terms of product appeal to customers and management’s visibility into near-term results. End market conditions and company specific issues improved slightly in the July quarter (e.g emerging markets and major account results rebounded), and we believe Autodesk can translate net firmer global macroeconomic conditions into better execution and results in the near-term.”
Other analysts were mixed but mostly cautious, with many looking to the company’s October analyst day for more clarity.
Canaccord Genuity’s Richard Davis maintained a Hold rating but lowered his price target by $3 to $38: “Autodesk’s revenues shrank due to worldwide slow economies and some purposeful decisions on selling into the education market. While we certainly understand macro headwinds, the fact is that higher valuations go to firms that control their destiny. To its credit, Autodesk has begun to make progress in this direction – adding suites, disruptively priced PLM, and nascent cloud design offerings. The only problem is that these efforts will take time, perhaps more than a year, to show material impact. We hope to someday upgrade our rating on Autodesk, but we need to have some degree of confidence that 1) our estimates won’t be coming down further, and 2) we can make a credible case that we can see a path to revenue or bookings growth of at least 10%.
Citigroup’s Walter Pritchard maintained a Neutral rating and $36 price target: “Stock is going to run into Oct. 2nd, whether it makes sense or not — We expect the stock will trade higher on the headline of “business model transition” as investors simplistically overlay the ADBE chart (+60% since announcement 11/09). We expect ratable revenue will move beyond 40% and this could help the stock’s multiple. It remains to be seen, in our view, how the company can drive dramatic change in the financial model, given the current starting point and commentary so far. Meanwhile, investors are ignoring deteriorating fundamentals as Q3 guide was lowered (not business model transition).”
Credit Suisse’s Phillip Winslow maintained a Neutral rating and $35 price target: “Autodesk also announced that management would provide more detail about the impact of the introduction of ratable revenue streams at its Investor Day on October 2nd. Although many investors have tried to compare the potential benefit to Autodesk and its stock with the positive impact from Adobe’s transition to the Creative Cloud, we would not expect an uplift to average revenue per user similar to Adobe’s transition. Specifically, Autodesk has offered subscriptions that can be purchased with a new Autodesk software license for many years (which currently account for 44% of revenue), and we believe that more than 70% of users are already on a subscription program. Autodesk appears to be offering these newer ratable revenue license models as options to clients in addition to the current perpetual license model, which compares with Adobe’s forced migration. Therefore, we would expect Autodesk’s revenue to benefit from (1) monetizing new cloud-based add-ons/offerings and (2) expanding the company’s user base via rental license offerings to be less dramatic in terms of the incremental growth potential as compared with Adobe’s transition to a ratable subscription model.”
MKM Partners’ Israel Hernandez maintained a Neutral rating and $41 price target: While the announcement that Autodesk will be accelerating its model transition to the cloud will be viewed favorably by some investors, the fact remains that Autodesk has yet to see any meaningful positive uplift from the macro recovery, leading to another downward revision to estimates. While the cloud shift will change the conversation away from another guide down, we would like to see more evidence of tangible fundamental improvement in the business before getting constructive on the name. We now forecast FY14/FY15 non-GAAP EPS of $1.76 and $2.00 vs. prior $1.94 and $2.25, respectively, though these estimates are preliminary and likely to change as we learn more about the model change and impact on financials at the October analyst day.”
Pacific Crest’s Brendan Barnicle maintained a Sector Perform rating: “Even with our estimate cuts, it is likely that Autodesk will still be able to maintain $2 in EPS next year, which should provide some downside protection. Given the company’s virtual monopoly and market leadership, it is unlikely that ADSK would decline below $25. However, we are not confident that this will be the last cut to Autodesk’s estimates.”
RBC Capital Market’s Matthew Hedberg maintained an Outperform rating and $50 price target: “Under a backdrop of low expectations, Autodesk reported better-than-expected results which were attributed to strong Suites and AEC performance. Specifically, Suites continued its strong performance growing 18%, accounting for 34% of total revenue and provides a 20%+ uplift to ASP. By segments, AEC grew 9% while the other segments declined including Platform Solutions and Emerging Business that was down 9%. Geographically, APAC showed solid growth at 4% cc as global conditions improved in Japan and China while EMEA is still lagging.
The primary focus of the call centered on their pending model transition from a perpetual license/maintenance model to a more recurring/ratable, SaaS/rental model. Management indicated they are happy with early results/feedback and expect the transition to happen faster than previously predicted. Although the migration won’t be forced, management expects the “vast majority” of revenue will be ratable in a handful of years. Additional details were thin as management pointed investors to their upcoming analyst day on 10/2 where they will likely walk through the transition in more detail including revenue and margin trends, flexible pricing options and key metrics to measure the progress of the transition. Although guidance came down, we believe shares should react positively to the news of an accelerated transition and would continue to buy shares into their analyst day.”
