Morgan Stanley Sees Challenges Autodesk Delivering On Subscriber Count

Morgan Stanley's Keith Weiss maintained an Equal-Weight rating for

and a price target of $65, after the company reported better-than-expected 4Q results and issued an initial FY17 outlook that was better than feared. Autodesk reported subscription ads of 109K, total revenues of $648 million and desktop subscription growth of 300 percent y/y. The company's maintenance ARR y/y growth continued to decelerate through the year, ending at 2 percent, versus 16 percent in 1Q. Analyst Keith Weiss mentioned that although Autodesk's increased focus on opex controls may allow it to achieve the newly outlined FY20/23 FCF targets of $6 and $11 per share, the company is likely to struggle with the pace of subscriber adds. In order to achieve the 500 K guidance for net units in FY17, the company would need to record 900K gross seat ads in the year, Weiss pointed out. He added that this would already be above the historical range of 500K-800K. Weiss believes that the pressure on management to curtain expenses could restrict their ability to invest in newer projects and products. Autodesk's transition model is very sensitive to the opex path, as the company has to not only convert its nonrecurring customers, but also needs to cater to a healthy chunk of brand new users besides selling new subscriptions into its existing customer base, the analyst elaborated. The FY16-FY20 CAGR has been reduced from 3 percent to 0.1 percent. The FY20 FCF has been raised from $4.21 to $5.27.