Autodesk - Too Expensive To My Taste Even After Adjusting For Business Model Change

| About: Autodesk, Inc. (ADSK)


Autodesk reported solid billing growth while the company is transitioning its business model.

Investors should focus on billings growth over revenue growth as it provides a better clue about the real performance.

I believe shares are expensive, even when factoring in the ¨artificial¨ headwinds of the change to a SaaS model.

Investors in Autodesk (NASDAQ:ADSK) were pleased with the company's first quarter results and upbeat outlook for the remainder of the year.

As the company is still in transition mode to a SaaS based model, investors are still wondering how the financials will look like on a post-transition basis. I believe shares are still quite expensive even when factoring in the impact of the transition, and therefore remain on the sidelines.

First Quarter Headlines

Autodesk reported first quarter revenues which came in at $592.5 million which is 3.9% higher compared to the year before. In constant currencies growth would have come in a percent higher.

Reported GAAP earnings fell by half to $28.3 million with GAAP earnings coming in at $0.12 per share.

Non-GAAP earnings came in at $0.32 per share, down from the reported $0.42 per share last year.

Looking At The Operations

Autodesk is in the middle of essentially changing its business model, a reason why GAAP financial metrics are not the most useful at the moment. Like many of its competitors, Autodesk is in transition to a Software-as-a-Service model. The company aims to generate 70% of its revenues as a recurring mode in a transition which takes years.

Eventually the company will receive monthly payments for its services instead of long term multi-year contracts. The transition is similar to what competing firms like Adobe Systems (NASDAQ:ADBE) are making as well.

Billings rose by 10% compared to the year before as total subscriptions rose by 89,000 on a sequential basis, far above consensus estimates. The company has well-diversified operations in terms of geography, while it shown growth in all three major geographic segments.

US sales rose by 2%, EMEA sales were up by 4% while APAC growth came in at 6%. Important to notice, in constant currencies, APAC growth was reported at 15%.

Looking Into The Fiscal Year

For the current second quarter, Autodesk sees revenues coming in between $595 and $610 million. This represents 1.7% growth on the midpoint of the guidance at a sequential basis, and 7.3% growth on an annual basis.

GAAP earnings are seen between $0.05 and $0.10 per share, while non-GAAP earnings are see twenty cents higher.

Full year billings growth is seen at 7-9% which should translate into 4-6% revenue growth. GAAP margins are seen at 3-5% while net subscriber additions are foreseen at 150,000-200,000.


Autodesk ended the quarter with $2.12 billion in cash, equivalents and marketable securities. The company has nearly $747 million in outstanding debt, for a comfortable net cash position of nearly $1.4 billion.

At $52 per share, equity in the business is valued at around $11.8 billion which values operating assets at $10.4 billion. This values the company at 4.3 times anticipated revenues of $2.4 billion and a non-meaningful GAAP earnings metric.

Autodesk does not pay a dividend at the moment.

Takeaway For Investors

Investors have troubles figuring out the real performance of Autodesk throughout the transition. Yet investors are comforted after the company behind the famous AutoCAD design software hiked its outlook for billing as well as revenue growth for the year.

In the end, the new business model results in more predictable revenue streams and it makes it easier for consumers to sign up as they don't face large upfront costs.

During the transition phase, billings are a better indicator of the performance versus revenue growth which is trailing during this transition phase. As a result, deferred revenues rose by 13% to $964 million, approaching the billion mark.

To get a clue about the potential profits of the firm, during the latter part of the 2000-2010 decade, Autodesk reported net earnings around 10-15% of revenues. Based on today's reported revenues earnings of $250-$375 million should be attainable given that the transition has been completed.

Even then, a roughly $10 billion price tag is a bit on the expensive side. This implies paying a 30-40 times earnings multiple for a company with solid growth and a strong product offering, which is too expensive according to my standards.

I remain on the sidelines with a slightly bearish stance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.