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Autodesk Has Designs on New Business Model

The shift to subscription-based pricing should pay off in the long term.

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After fully digesting  Autodesk's (ADSK) fiscal 2014 results, we have taken a fresh look at the firm's strategic business model transition and what it ultimately means for the company over the long term. While the company's financial performance will be underwhelming (relatively speaking) in the short term given revenue recognition changes, we think Autodesk is well placed to benefit from its shift to more subscription-based, higher long-term value pricing models. We expect revenue growth to converge with 12% billings growth in fiscal 2018. Additionally, we forecast considerable operating margin expansion given the business model transition, with 30% non-GAAP operating margins in fiscal 2018, in line with guidance. In all, we have rolled our financial model forward one year, have become more confident in Autodesk's ability to migrate clients to subscription-type pricing models, and see good spending across the company's core markets. As a result, we have increased our fair value estimate to $51 per share from $38 and retain our Wide Economic Moat Rating.

Evolving With the Market Will Keep It a Leader
Autodesk is positioning itself to protect and extend its market leadership in computer-aided design. We believe the firm will remain a market leader over the long term, given its commitment to evolve to changing market trends, and its recent investments in mobile, social, suites, and cloud technology exemplify this. Autodesk also aims to expand into adjacent markets such as product lifecycle management and simulation and increase its presence in the underpenetrated government and construction sectors. As a result of its strong position and encouraging growth trends, we forecast respectable mid- to high-single-digit revenue growth.

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Andrew Lange does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.