Market Overview

Autodesk Banks On Subscriber Base, Restructuring Woes Remain


On Dec 6, we issued an updated research report on Autodesk Inc. ADSK.

The company recently reported better-than-expected fiscal third-quarter 2018 results. The top- as well as the bottom line surpassed the respective Zacks Consensus Estimate and improved significantly year over year.

Notably, the company has beaten the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive surprise of 19.2%.

Buoyed by the encouraging third-quarter results, Autodesk revised its full-year revenue and EPS expectations.

The Zacks Consensus Estimate for Autodesk moved upward following the quarterly results and impressive outlook, which reflects the optimistic view of analysts. In the past 30 days, earnings estimates for the fourth quarter have improved from a loss of 13 cents to loss of 12 cents. The projection is also better than the year ago quarter's loss of 28 cents.

Notably, shares of Autodesk have gained 44.5% year to date, substantially outperforming the industry's 31.8% rally.

Increasing Product Subscriptions

Autodesk's business transition from licenses to cloud-based services is helping the company to boost subscriptions. We note that Autodesk's broad product portfolio generates new customers in both domestic and overseas markets.

Subscription revenues soared 105.6% year over year driven by strong product subscriptions. The company's maintenance to subscription (M2S) program recorded 110K subscriptions. New customers represented about 30% of the mix in the quarter and contributed a significant portion of subscription additions.

Cloud subscription additions were impressive driven by robust performance of BIM 360 and Fusion tools. The company's focus to fast integrate new technology into Fusion 360, advancement of BIM 360 platform and the growth of its Forge platform are positives.

Moreover, improvement in construction and manufacturing activities in the emerging markets present further growth opportunities.

The company's BIM 360 platform recorded major wins with the construction companies. Management noted on the last conference call that Autodesk signed a $5 million BIM 360 deal with one of Japan's largest general contractors and a similar deal in EMEA as well.

Restructuring Plans Raise Concerns

Autodesk announced a restructuring plan during its last earnings release. The stock took a beating following the announcement.

However, management believes restructuring will drive long-term growth by realigning investments in strategic areas like digital infrastructure, facilitating development of core products and increasing spend on construction opportunities.

The company plans to keep spending levels flat this year as well as the next. Autodesk plans to attain this by discontinuing research and development activities that are "not aligned with reimagining construction, manufacturing and production."

Moreover, Autodesk sites that are no more associated with the company's global location and talent acquisition strategy will be closed.

However, a pretax charge of $135-$149 million owing to the restructuring plans is anticipated. Of this, nearly $91-$100 million is expected to be incurred in the fourth quarter and the rest of it in the next fiscal.  We believe this to remain an overhang on the company's bottom line.

Zacks Rank and Stocks to Consider

Autodesk carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Intel Corporation INTC, Lam Research Corporation LRCX and NVIDIA Corporation NVDA, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks Rank #1 stocks here.

Long-term earnings growth rate for Intel, Lam Research and NVIDIA is projected to be 8.4%, 14.9% and 11.2%, respectively.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Autodesk, Inc. (NASDAQ: ADSK): Free Stock Analysis Report
Intel Corporation (NASDAQ: INTC): Free Stock Analysis Report
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Lam Research Corporation (NASDAQ: LRCX): Free Stock Analysis Report
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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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