Autodesk Inc. (ADSK): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:
Autodesk reported impressive fourth-quarter fiscal 2014 results wherein both earnings and revenue beat the Zacks Consensus Estimate. The company provided a cautious guidance for the first quarter of fiscal 2015. Sluggish macro economic environment, weakness in emerging markets, customer concentration and increasing competition are the major headwinds, going forward. Moreover, increasing investment in new products is expected to hurt margins in the near term. However, the company witnessed moderate demand for design related suites and the AEC business segment. Further, the business transition from personal computer to cloud-based offerings will boost the company's profitability, going forward. Thus, we upgrade our recommendation from Underperform to Neutral and set a target price of $50.00.

Overview:

San Rafael, CA.-based Autodesk ADSK develops model-based design, engineering and documentation software and also offers consulting, support and training services. Autodesk's software helps customers to imagine, design and create digital prototypes of their ideas. Through the company's software they can visualize, simulate and analyze the real-time performance of these digital prototypes.

Autodesk serves customers in architecture, engineering and construction manufacturing and digital media and entertainment industries. Autodesk operates in four segments: Platform Solutions and Emerging Business and Other (PSEB), Architecture, Engineering and Construction AEC, Manufacturing Solutions MFG, and Media and Entertainment (M&E). The company also offers design and creation suites that combine multiple products across segments.

The PSEB (35.0% of fiscal 2014 revenues) segment consists of AutoCAD (computer-aided design application) and AutoCAD LT. AutoCAD is used for designing, drafting, detailing and visualization and is the company's largest revenue-generating product. AEC (32.0% of fiscal 2014 revenues) segment offerings primarily include Autodesk Revit customized for building information modeling (BIM). The MFG (25.0% of fiscal 2014 revenues) segment offers digital prototyping solutions to manufacturers in automotive and transportation, industrial machinery, consumer products and building products industries. The M&E (8.0% of fiscal 2014 revenues) segment includes two product groups Animation (3ds Max and Maya software) and Creative Finishing.

Autodesk's revenues declined 1.7% year over year to $2.27 billion in fiscal 2014. License and other (55.0% of revenues) declined 8.0% year over year, while Subscription (45.0% of revenues) climbed 7.5% from fiscal 2013. The company's flagship products (AutoCAD, AutoCAD LT, AutoCAD Civil 3D, AutoCAD Mechanical, AutoCAD Architecture, Autodesk 3ds Max and Autodesk Maya) accounted for approximately 51% of revenues in 2014. Design and creation suites accounted for approximately 34.0% of revenues, while new products contributed 14.0% of revenues in fiscal 2014.

Autodesk distributes its products and services primarily through indirect channels (approximately 2,500 resellers), which accounted for 84.0% of the 2014 revenues. Sales, through its largest distributor, Tech Data Corp, accounted for 24.0% of 2014 revenues.

Autodesk faces significant competition in most of its operating segments from the likes of Adobe, ANSYS, Bentley Systems, Dassault, Google Inc., Parametric Technology, Siemens Product Lifecycle Software and Trimble Navigation Limited.

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