EUR 850.00 For Business Accounts Only

Morningstar | Maturation of Autodesk's Subscription Model Continues to Bear Fruit; Maintain FVE, Shares Overvalued

Autodesk posted strong fiscal 2019 second-quarter results, exceeding the upper-end of management guidance on both the top and bottom lines. The travails from the firm's transition to a recurring revenue model are largely behind them, and net subscriber growth picked up during the quarter, driven by strong adoption of their cloud products. From our vantage point, there is a clear path for the company to return to GAAP profitability as subscription plan subscription growth across their major verticals drives operating leverage across the sales, marketing and administrative line items. Consequently, we are maintaining our wide moat rating as well as our fair value estimate of $113 per share for this CAD titan. The stock continues to trade at a premium, however, with shares moving as much as 7% higher during after-hours. It seems that the market is pricing in a scenario more akin to our bull case. We continue to believe that while Autodesk will maintain leadership in its core AEC vertical, its expansion into adjacencies such as PLM and simulation will foster intense competition from entrenched players that benefit from some of the same structural advantages that Autodesk enjoys within the AEC space. At current levels, we recommend investors wait for a pull-back before investing in this wide-moat name.

Revenue of $612 million represented a 21% increase year over year on a constant currency basis. The company posted its second straight quarter of non-GAAP profitability, with an adjusted operating margin of 9%. Subscription plan ARR of $1.68 billion and total ARR of $2.35 billion represented a 111% and 27% increase respectively, both on a constant currency basis. The firm added 119,000 subscribers sequentially during the quarter, driven by a 290,000 increase in subscription plan subscriptions and offset by a 172,000 decrease in maintenance plan subscriptions.

117,000 of the lost maintenance subscribers remained Autodesk customers by converting to a product subscription, which reflects the strength of the firm's relationships with its customer base. We believe the firm will continue to grow its subscriber base at an accelerated clip, as they continue to enhance the functionality of, and market, their product suite.