We updated our research report on Autodesk, Inc. ADSK on Jul 3
Autodesk reported decent first-quarter fiscal 2016 results. While revenues improved significantly, earnings were in line with expectations. The company is likely to benefit from the increasing adaptability of cloud-based services. Also, the company’s business transition (from licenses to cloud-based services) is boosting its subscriptions and deferred revenues, which are expected to benefit it in the long run.
Autodesk has a comprehensive product portfolio that positions it well to capitalize on the rapid adoption of computer-aided designing and manufacturing. Additionally, the company has been taking initiatives to boost the development of 3D design software. In Jun 2015, the company made the Autodesk Design Academy iTunes U course available for students and educators. This step reflects the company’s efforts to enable the youth to acquire skills for the development of 3D technology. Also, it launched its learning platform – Project Ignite, which aims to help in the growth and development of young learners, free of cost. The platform will allow the youth to have access to the novel technology developments, which include 3D printing and electronics, in order to give them a practical exposure of the industry.
However, in the near term, the company’s profitability might be affected because of investments in cloud-based infrastructure and marketing initiatives. Furthermore, in the reported quarter, the company witnessed soft growth in billings that remains a concern.
Further, the discontinuation of perpetual license offerings this year may have some impact on Autodesk’s financials. Although the company’s ongoing business transition is a positive over the long term, it is expected to weigh on the financials, especially margins, over the next couple of years.
Autodesk also faces high risks from product and customer concentration. The company derives a significant portion of its revenues from a handful of products like AUTOCAD and AUTOCAD LT (together accounted for 28% of revenues in fiscal 2015). A decline in demand for any of these products will affect the company’s growth. Similarly, Autodesk depends on only a few distributors like Tech Data TECD for the major portion of its revenues. This, also, is a cause for concern.
Autodesk currently carries a Zacks Rank #4 (Sell). Advent Software, Inc. ADVS and Guidance Software, Inc. GUID are a couple of better-ranked stocks in the space, each of which sports a Zacks Rank #1 (Strong Buy).
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