Autodesk: Now The Conversation Gets Interesting

Posting revenue of $486 million and earnings per share loss of $0.16, Autodesk, Inc. ADSK far exceeded Street expectations and rocketed its shares to all-time highs Friday.

At the same time, it earned the praise of Baird Equity Research and Credit Suisse, each of which maintain Outperform ratings on the stock. Baird raised its price target to $110, while Credit Suisse eyed the $120 level.

The Baird Bull

Baird analyst Rob Oliver lauded Autodesk’s quick adjustment to its new subscription-based business model, toward which it will shift perpetual license and maintenance customers in June. The company’s quarterly metrics of net new subscriptions and annual recurring revenue outperformed consensus estimates by 28.9 percent and 4.4 percent, respectively.

“We believe that while the transition creates a short-term deceleration in revenue growth and margins, the long-term effect will be higher steady-state earnings power and cash flow generation as the model normalizes,” Oliver wrote.

He also sees catalysts in the continued leverage of a cost-cutting eStore, which was up 300 percent year over year and is said to save on 35 to 40 percent channel discount. Additionally, the introduction of cloud products and features could entice new and unique customers in underserved markets.

As thesis risks, Oliver is watching piracy rates and the continued search for a CEO, whose contenders include current Autodesk co-CEOs Amar Hanspal and Andrew Anagnost.

Suisse’s Piece

Credit Suisse, meanwhile, expects ARR growth to accelerate throughout the next year and possibly beyond, which would propel shares higher.

“We believe that management has multiple levers to pull to achieve their revenue and new subscriptions guidance, including promotions, although they indicated that they expect to discount less going forward to non-paying customers, which we interpret to mean that they believe there is even greater price inelasticity on their products,” analysts wrote in a Friday note.

They justified their overall rating by free cash flow potential over the coming years stimulated by migration toward the subscription plan on the part of maintenance customers and non-subscribers, a conversion of non-paying clients to paid, and better expense management.

Credit Suisse estimated annual revenue of $2.036 billion with EPS losses of $0.59.

The stock was trading around $110.79, up 15.6 percent off the open, at time of publication.

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