Take A Closer Look At Autodesk's Key Subscriber Adds

Autodesk, Inc. ADSK reported its first quarter results on Thursday. In spite of an earnings beat, shares traded down more than 2.5 percent on Friday, driven by the below-consensus EPS and sales guidance. Analysts at Barclays remain optimistic in the company’s transition story, which remains on track, as evidenced by a subscriber additions beat and an unchanged fiscal 2017 guidance.

The firm reiterated an Overweight rating and $70 price target on the stock.

The design software and services provider “has started to convert non-paying subscribers,” and Barclays is wondering if the recent promotion evidences that this group of users could be larger than they had originally thought – 2.8 million was the original assumption. Tactically, the firm adjusted seasonality of subscribers, and its assumptions for maintenance churn. However, analyst Saket Kalia explained that analysts “continue to expect the model to bottom in 3Q with revenue acceleration to follow, ultimately driving $1B in FCF in FY20” and their $70 price target.

A Look At Subscriber Adds

For the first quarter, Autodesk reported 132,000 subscriber net adds, well above the Street’s consensus of 109,000, mainly on the back of a declining maintenance churn, EBA subs, and higher non-subscribing conversions.

For the second quarter, Barclays analysts are modeling a decline in subs to roughly 92,000, as the EBA and promotion benefits fade out. However, they do believe “maintenance churn is slightly lower as elevated suite sales could drive higher attach.” For the second half of the year, the expertsare projecting seasonally strong subs, but expect maintenance churn to surge as well, to ~40,000 per quarter, starting in the third quarter.

Finally, the analysts took “a harder look at maintenance churn through FY20 and think the drag could be less than” they had originally modeled due to multi-year contracts.