Autodesk Earnings: Business Momentum Despite Difficult Operating Environment

Wide-moat Autodesk ADSK reported fiscal 2024 second-quarter results that moderately exceeded our expectations. Autodesk achieved strong results despite a difficult macroeconomic environment and currency headwinds through strong subscription metrics coupled with product and geographic diversification. Customers continue to increase usage of Autodesk’s software, resulting in enterprise business agreement usage surpassing limits built into initial contracts leading to a billings, free cash flow, and subscription revenue lift. Considering Autodesk’s difficult operating environment with its strong results and raised guidance, we are raising our fair value estimate to $247 from $240 per share. Shares popped over 6% afterhours, but despite the increase, we view shares as attractive and note a rare opportunity for long-term-oriented investors to buy this stellar wide-moat name.

Second-quarter revenue grew 9% year over year to $1.345 billion, with strong results from its architecture, engineering, and construction segment growing 11% year over year as reported. Growth was broad-based with year-over-year revenue increases for each geographic and business segment. Autodesk’s consumption model product, Flex, maintained its momentum, with three additional million-dollar deals in the quarter. This demonstrates Autodesk introducing customers to its ecosystem at a lower cost and relying on its best-of-breed product to speak for itself. We consider this wise due to Autodesk’s network effect that we believe keeps customers using its software. Billings decreased 8% to $1.095 billion as the firm’s transition from upfront to annual for multiyear contracts continues to dampen overall billings. Free cash flow was $128 million, down 48% year over year but higher than expected as early renewals for enterprise business agreements buoyed results. As a reminder, the billing transition is a significant headwind to free cash flow and is expected to persist through fiscal 2024 and into fiscal 2025.