Autodesk's Earnings And 15% Decline: Wall Street Reacts

Autodesk, Inc. ADSK's third quarter earnings report resulted in the stock notably selling off by 15 percent on Wednesday, which reinvigorated Wall Street's bull vs. bear debate on the software company. 

Morgan Stanley: Upside Potential

Morgan Stanley's Keith Weiss maintains an Overweight rating on Autodesk's stock with an unchanged $143 price target.

Heading into Autodesk's earnings report, many investors were expecting a "better than in-line" report, but the company delivered an "in-line where it matters" report, Weiss said in a note. Autodesk's business model is dominated by multiple subscription offerings and products and a more complex set of promotions and bundling. This was made apparent in the third quarter, when net subscription additions fell short of expectations yet management "proclaimed a solid quarter," Weiss said. 

Overall, the third quarter earnings report can be broken down into three pieces, Weiss said: 

The subscription add miss isn't as bad as it may appear, as the majority of the miss comes from low-priced and sometimes free Cloud subscriptions.

Annualized recurring revenue growth of 25 percent is consistent with the company's target of 24-26 percent, but investors may have been expecting a better reading. 

The core reason for owning Autodesk's stock is unchanged and management is on track to achieve its longer-term guidance.

"Given a core business still on track, we see ADSK continuing to progress toward our $143 price target," the analyst said. 

Credit Suisse: Good Report, But Concerns Remain

Credit Suisse's Michael Nemeroff maintains an Outperform rating on Autodesk's stock with a price target dropped from $140 to $135.

Autodesk shared an overall "good" report that was highlighted by two of the company's largest deals in its entire history, Nemeroff said in a research report. In addition, the report showed that maintenance to subscription conversions are tracking better than expected, as one-third of maintenance customers that were up for renewal converted to product subscription, the analyst said. But a reduction in the company's net subscriber additions in fiscal 2018 is among one of the reasons why the stock is seeing heavy selling pressure, he said. 

While management noted that the reduction in net sub adds is attributed to a decrease in Cloud-related promotions in the fourth quarter, it will actually have a positive impact on average revenue per subscriber and will be neutral to ARR, Nemeroff said. As such, the bullish case for owning the stock remains, but with a lower price target, according to Credit Suisse. 

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Canaccord Genuity: 'Squishy' Quarter

Canaccord Genuity's Richard Davis maintains a buy rating on Autodesk's stock with a price target lowered from $140 to $135.

  • Autodesk's earnings report is merely a normal "hiccough," which is expected for a company transitioning to a subscription business model, Davis said.
  • The stock's long-term prospect of trading as high as $250 within five years remains unchanged, the analyst said.

KeyBanc: Subscriber Concerns

KeyBanc Capital Markets' Monika Garg maintains an Overweight rating on Autodesk's stock with a price target lowered from $136 to $134.

Investors should focus on Autodesk's ARR as being "the metric to watch" moving forward, Garg said. 

  • A 24 percent ARR compounded annual growth rate target through fiscal 2020 is "still achievable," the analyst said. 

Wedbush: Downgrade Justified

Wedbush's Steve Koenig downgraded Autodesk's stock rating from Outperform to Neutral with a price target lowered from $138 to $126.

  • Autodesk's "surprisingly slow" ramp in free cash flow now limits the long-term visibility, Koenig said.
  • A potentially higher attrition from planned maintenance price increases should be of concern to investors, the analyst said.
  • The company will now need to spend more money than previously expected in digital infrastructure and cloud offerings, Koenig said. 

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Posted In: Autodesk SubscriptionCanaccord GenuitycloudCredit SuisseKeith WeissKeyBanc Capital MarketsMichael NemeroffMonika GargMorgan StanleyRichard DavisSteve KoenigWedbushAnalyst ColorAnalyst RatingsTech

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