EUR 850.00 For Business Accounts Only

Morningstar | Autodesk Reports Healthy Finish to 2019; Subscription Model Continues to Mature; Shares Overvalued

Autodesk modestly outperformed our expectations as it reported a healthy finish to fiscal 2019. The firm continued to benefit from strong subscription plan adoption and, with recurring revenue totaling 95% of yearly revenue, we believe the firm is in a steady state as it transitions away from one-off perpetual license sales. Management noted that total subscription plan subscribers were now greater than total maintenance plan subscribers at the peak of the prior business model, indicating significant user growth and the success of the firm’s multiyear subscription business model shift. We believe this subscription-based business model will create better customer lifetime value for Autodesk over the long term, and we see the firm as very well positioned in its markets, hence our wide economic moat rating. After accounting for Autodesk’s full-year results, rolling our financial model forward, and considering management’s guidance, we have increased our fair value estimate to $117 per share from $113. We think the firm is in a great competitive position but balk at the premium commanded at current prices. We think investors should seek a wider margin of safety before investing new capital in the name.

For the quarter, reported ASC 606 revenue rose 33% year over year to $737 million (up 31% in constant currency). Total annualized recurring revenue grew 34% year over year to $2.75 billion, driven by an 87% surge in subscription plan annualized recurring revenue to $2.2 billion. Total subscription additions grew 252,000 sequentially but was flattered by a 127,000 contribution from acquisitions. Still, Autodesk’s subscription business continued to perform very well, and the migration of users has been an unequivocal success, in our view.

We think an emerging area of significant strength lies in the firm’s construction opportunity. Organic investment in this market has been supplemented by recent acquisitions such as Assemble Systems, PlanGrid, and BuildingConnected and we believe the firm can integrate its sticky, market-leading solutions over the long term as construction firms look to digitize their operations.

GAAP operating margin broke into positive territory for the second consecutive quarter at 5%, while non-GAAP operating margin rose to 19% from 14% in the prior quarter and negative 3% from the prior-year period. As Autodesk’s subscription business model matures and we see the positive layering effect from the maturity of this business model, we expect both GAAP and non-GAAP operating margins to spike higher over the midterm.