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Shares of Autodesk (ADSK) are marching higher as investors act relieved following the release of a strong second quarter earnings report.

I remain cautious as I don't understand why the market attaches a premium valuation to this software company given the lack of revenue growth. This is despite the great popularity of Autodesk's products.

Second Quarter Results

Autodesk generated second quarter revenues of $562 million, down 1% on the year. The decline was mostly caused by adverse currency movements, as in constant currencies revenues would have increased by 2 percent.

Revenues were roughly in line with analysts predictions of $561 million.

GAAP diluted earnings per share fell by a penny to $0.27 per share, while non-GAAP earnings fell by three cents to $0.45 per share. Adjusted earnings beat consensus estimates of $0.42 per share.

Looking Into The Results

Autodesk saw some weakness in its European, Middle East and African business which reported a 4% decline in revenues to $202 million, but was flat in constant currencies. As revenues in the Americas were up by 2%, they matched those in EMEA.

Asia-Pacific revenues fell by 1% to $158 million, but were actually up 4% in constant currencies. Disappointing was the 2% drop in emerging economies revenues, coming in at $86 million.

Platform Solutions revenues fell 9% to $197 million, while revenues from the architecture, engineering and construction business rose by 9% to $177 million. The manufacturing unit reported a 2% increase in revenues to $144 million, while revenues from media and entertainment fell by 11% to $43 million.

All in all, net income fell slightly to $61.7 million on the back of the modest decline in revenues.

Looking Ahead

For the current third quarter, Autodesk sees revenues coming in between $540 and $555 million. GAAP earnings per share are seen between $0.19 and $0.23, while non-GAAP earnings are seen between $0.36 and $0.40 per share.

Consensus estimates for non-GAAP earnings stood at $0.50 per share, while analysts looked for guided revenues of $580 million.

The guidance implies that while revenues are falling 3% compared to the second quarter at the midpoint of the guidance, they are flat compared to last year. To put the earnings guidance into perspective, last year's earnings came in at $0.13 per share.

Valuation

Autodesk ended its second quarter with $2.00 billion in cash, equivalents and marketable securities. The company operates with $746 million in debt, for a solid net cash position of around $1.25 billion.

Revenues for the first six months of the year came in at $1.13 billion, down 2.1% on the year before. Net earnings fell by 18.3% to $117.3 million. At this pace annual revenues could come in around $2.25 billion, while net earnings are seen between $225 and $250 million.

Trading around $39 per share, the market values Autodesk at $8.65 billion, or its operating assets at $7.4 billion. This values operating assets of the firm at 3.3 times annual revenues and 30 times annual earnings.

Autodesk does not pay a dividend at the moment.

Some Historical Perspective

While long-term investors have seen really good returns, the more recent returns have been less impressive. Since 2003 shares have rallied from $10 to highs around $50 in 2007.

Shares have fallen all the way back to $12 in 2009 amidst the financial crisis but have recovered to current levels around $40 per share.

Between the calendar year of 2009 and 2012, Autodesk has increased its annual revenues by almost 35% to $2.31 billion. Net income rose from $58 million to $247 million in the meantime.

Investment Thesis

Just like major competitor Adobe (ADBE), Autodesk is trying to transform its business model by selling monthly license streams instead of large lump-sum and contracts with upfront payments. Autodesk will give shareholders and analysts a detailed look about its future subscription revenue model in an investor meeting to be held in October.

Adobe's 50 million active user base is furthermore accessing their beloved software more, and more from the cloud. Besides offering flexibility in software accessibility, Autodesk aims to boost flexibility in payment models as well.

Autodesk, known from its computer-aided design software (CAD), saw a modest performance over the past quarter. Its software is used in the architecture and construction sector, and these sectors have seen some recent tailwinds given the recent strength in the US housing sector. Other sectors have seen continued struggles.

Back in August of 2012 I last took a look at Autodesk's prospects. I concluded that despite the growth opportunities, the profitability of the business was dismal, especially given the valuation of the business.

Today I reiterate my stance. I remain on the sidelines on the back of a premium valuation accompanied with a lack of revenue and earnings growth.

Source: Autodesk: Puzzled About Premium Valuation Given Lack Of Growth