Autodesk Earnings: Resilient Product Despite Headwinds to Open the Year; Shares Undervalued

Wide-moat Autodesk ADSK reported fiscal 2024 first-quarter results that were largely in line with our expectations. Continued foreign exchange headwinds coupled with contract renewal timing suppressed revenue slightly, and management expects revenue to accelerate as the year progresses. Business momentum was similar to the fourth quarter, with slight deceleration in new subscriber growth and current remaining performance obligation growth the same as last quarter coming in at 12%. However, Autodesk saw improved renewal rates. As noted in the fourth quarter, Autodesk’s transition from upfront to annual billings for multiyear contracts will affect billings growth for fiscal 2024. Despite the transition and currency headwinds, we have further confidence in Autodesk’s long-term noncore potential—from building information modelling to targeting infrequent users via its new Flex offering. As a result, we are modestly increasing our fair value estimate to $240 per share from $230 per share. We view shares as attractive, marking a rare opportunity for long-term-oriented investors to buy this best-of-breed name.

First-quarter revenue grew 9% year over year to $1.269 billion, with continued strength in its architecture, engineering, and construction segment as customers consolidate Autodesk’s solutions and connect digital workflows in the cloud. Billings increased 4% to $1.2 billion, as there was momentum for renewal rates and early renewals. The billings increase was partially offset by about 1 month of annual billings for most multiyear contracts as the billing model shows its impact. Free cash flow was $714 million and up 69% year over year, a strong bedrock given the fact that the billing transition will create a significant headwind to free cash flow in the remainder of fiscal 2024 and trickle into fiscal 2025.