Autodesk: Shares Fall On Valuation Concerns Given Structural Profitability Issues

| About: Autodesk, Inc. (ADSK)

Shares of Autodesk, Inc. (NASDAQ:ADSK) fell over 15% in Friday's trading session. The design and software company reported disappointing second quarter results on Thursday after the close.

Second Quarter Results

Autodesk reported second quarter revenues of $568.7 million, up 4% on the year. Revenues fell 3% compared to its first quarter revenues. License and other revenues rose 2% to $341 million, while maintenance revenues rose 8% to $228 million. Revenues came in much lower than analysts estimates of $594.0 million, after Autodesk guided for revenues of $580-$600 million.

GAAP operating margins compressed fell by 1% to 16%. The margin compression resulted in a decline in GAAP earnings per share from $0.30 per share towards $0.28. Non-GAAP earnings rose from $0.44 to $0.48 per share. On average, analysts expected Autodesk to earn $0.49 per share.

Autodesk repurchased roughly 3.4 million shares, at an average price of $32.23 per share, for a total consideration of $111 million.

The company is restructuring some parts of its business. Autodesk sees design and engineering software moving towards the cloud and mobile solutions. The company will take a pre-tax charge of $50-$60 million in the third and fourth quarter, related to the restructuring.

CEO Carl Bass commented on the results:

"Execution challenges, combined with an uneven global economy, resulting in disappointing revenue results for the quarter. The shortfall in revenues did not emerge until July as our demand generation activities did not produce the anticipated effect. The organizational realignment, combined with an uneven economic environment, limited our ability to both identify the shortfall earlier and respond more quickly."

Segmental Information

Europe, Middle-East and African revenues rose 1% on the year to $210 million, but fell 1% on the quarter. Revenues in the Americas rose 4% on the year to $199 million, but fell compared to the first quarter. Asia-Pacific revenues rose 12% per year to $161 million, up 3% on the quarter.

Revenues at platform solutions came in at $218 million. Architecture, engineering and construction revenues fell to $161 million. The manufacturing and media & entertainment division reported a decline in revenues as well.


For the third quarter of its fiscal 2013, Autodesk anticipates revenues between $550-$570 million. Earnings per share on a GAAP basis are expected to come in between $0.02 and $0.07. Non-GAAP earnings are anticipated to come in between $0.40-$0.45 per share. The guidance, came in below analysts consensus of non-GAAP earnings of $0.50 per share.

For the full year of its fiscal 2013, the company anticipates revenue growth to come in between 4-6%. GAAP operating margins are expected to fall 210 basis points.

Despite the challenging environment, Autodesk continues to see opportunities and strong long term prospects. The company remains committed to achieve the long-term growth targets by the end of 2015.


Autodesk ended its second quarter with $1.7 billion in cash and equivalents. The company operates without the assumption of debt.

For the first six months of its fiscal 2013, the company reported revenues of $1.16 billion. The company net earned $144 million on a GAAP basis, or $0.62 per share. The company is on track to report annual revenues of $2.3 billion for the year, on which it could earn $200-$250 million, or around $1 per share.

At the moment, shares are valued at $6.8 billion. Excluding the $1.7 billion in cash, operating assets are valued around $5.0 billion. This values the company at roughly 2.2 times annual revenues and 30 times earnings. The valuation compares to a revenue multiple of 3.9 times for Adobe Systems Incorporated (NASDAQ:ADBE), which trades at 20 times annual earnings.

At the moment, Autodesk does not pay a dividend.

Investment Thesis

Year to date, shares of Autodesk trade flat after the disastrous trading session on Friday. Shares hit highs around $42 per share in March, but fell towards $30 by May as the company warned of a tough second quarter.

Over the past five years, shares of Autodesk have lost roughly a third of their value. Revenues stabilized at around $2.3 billion, during this period of time. Earnings rose slightly from $185 million in 2008 to an expected $200-$250 million for this year. This includes the $50-$60 million in restructuring charges.

Despite the growth opportunities in the industry, profitability of the business remains dismal. Given the company's track record in recent years, I think the current valuation is on the high side. I remain on the sidelines.

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.