Wedbush Warns Of 'Elongated Transition' At Autodesk, Downgrades

In a report published Thursday, Wedbush analyst Steve Koenig downgraded the rating on

from Outperform to Neutral, while lowering the price target from $64 to $57. "Our intra-quarter checks suggest traction with desktop subscriptions is fairly modest, even with a 2Q promotion. Resellers are seeing good results from a license promotion, and they expect strong results this year from customer stockpiling of licenses ahead of the end of license sales," Koenig said. The analyst expects investor attention to increasingly shift towards CY16/FY17, during which there does not seem to be "traction with any replacement for license sales." While maintenance subscriptions remain strong, they are unlikely to give much of a boost to Autodesk in terms of model transition. "We think the company's model transition will be a more extended affair than is currently recognized, and the math behind FY18 billings and margin targets looks increasingly less probable. In the near-term, ADSK faces a high likelihood that revenue, EPS, and billings will be down in CY16/FY17 due to the elimination of license sales," the Wedbush report stated. The biggest concern for the company's larger resellers might not be how long it takes to rebuild revenue and cash run rates in the absence of license sales. They are likely to be more concerned about the uncertainty of whether Autodesk would directly accept subscription renewals and cut out the reseller. "Although ADSK may sweeten desktop subscription pricing and reseller margin or earn-backs after 2Q, there's not much room for improving the value equation to customers or resellers if the company wants to generate a meaningful pricing lift in a three-year horizon," Koenig added. With the elimination of licenses and the slow traction in desktop subscriptions, the analyst believes that the FY18 targets could be difficult for the company to achieve.