EUR 850.00 For Business Accounts Only

Morningstar | ADSK Updated Forecasts and Estimates from 26 Nov 2018

Autodesk reported a strong third-quarter result with subscription plan annualized recurring revenue, or ARR, surging on a year-over-year basis. The result illustrates the firm’s ongoing and successful transition to a subscription-based business model, which we believe will create better customer life time value for Autodesk. Subscription plan subscriptions rose 252,000 sequentially and now total 3.12 million. The growth in the subscriptions was bolstered by 71,000 maintenance subscribers converting over to product subscriptions under Autodesk’s maintenance-to-subscription program. We expect the company’s business to be driven by its subscription plan business and with the firm successfully migrating maintenance users over, we have no concern about this long-term strategy. Also, to that end, subscription plan ARR now represents over 75% of the firm’s total ARR base. We view the firm’s announced acquisition of PlanGrid as a positive development, but with our financial view unchanged, we reiterate our $113 fair value estimate on this wide moat name. Overall, we still see shares at a premium despite a recent pullback.

For the quarter, reported ASC 606 revenue grew 28% year over year to $661 million (rose 27% in constant currency). With the gradual maturing of the subscription model, Autodesk’s revenue growth across all geographies was strong. On a year-over-year ASC 606 basis, revenue improved 25% in the Americas, 30% in Europe, Middle East, and Africa, and 32% in Asia Pacific. We continue to expect strong broad-based growth over the medium term as the layering effect from subscriptions builds a large and consistent recurring revenue model.

Autodesk announced the acquisition of PlanGrid for $875 million (to be financed by a short-term loan and cash on hand). PlanGrid is a mobile and cloud-focused construction software firm and we certainly see the strategic rationale for Autodesk in this transaction. Autodesk’s Revit and BIM 360 combined with PlanGrid will create a leading field execution and project management solution for the construction industry, which we view as a positive. We see the construction industry as underpenetrated and believe that the adoption of software in this market will be a good long-term growth driver for Autodesk given the firm’s multiyear focus and commitment to construction.

Operating margins and EPS remain mostly inconsequential at this point on a GAAP basis owing to the subscription model shift. However, the trajectory is improving with the maturing of the model and we expect significant operating margin expansion over the coming years.