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Autodesk Designs for the Future

Its transition to a subscription business model remains largely on track.

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 Autodesk (ADSK) reported solid second-quarter results, with revenue in line with our expectations and non-GAAP earnings per share slightly ahead of forecasts. However, its full-year outlook was underwhelming, with management lowering its guidance for revenue, operating margin, and EPS; guidance for billings and subscriptions is unchanged. Positively, the downward revision was due to a larger-than-expected portion of future sales coming from ratable subscriptions rather than detrimental business conditions; management noted no change in business volume.

Autodesk's transition to a subscription business model remains largely on track, although its financial performance remains hard to determine, given the many puts and takes between perpetual licenses and subscriptions, along with an array of timing differences related to when subscriptions will be enforced between products. Autodesk will host an investor day next month, and we hope to hear a more refined transition plan then. For now, we reiterate our $60 fair value estimate and wide economic moat rating. We think Autodesk looks moderately undervalued and would recommend the stock to investors willing to accept lumpy midterm financial performance as the firm transitions to a ratable revenue model.

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