What to do with Autodesk, Inc. (NASDAQ:ADSK)? As an investment proposition the company sets off so many triggers that it is hard to keep track of all of them together. In summary the company has had a difficult year dealing with a sales force realignment, macro-economic weakness and managing a transition to selling more of its solutions as Software as Service (SaaS) based suites (where solutions are bundled) as opposed to standalone flagship products. It missed some internal guidance numbers early in the year (a rare event for the company) and operates under the same amount of limited visibility as it has always done. With that said the stock is looking attractive at this evaluation and deserves a close look.
I covered the stock in a previous article linked here, and looking back on what was forecast in Q3 it’s clear that Autodesk had a decent quarter in Q4.
- Q4 Revenue of $607 million vs. internal guidance of $570-600 million
- Q4 Non-GAAP EPS of 53c vs. internal guidance of 43-51c
- Q1 Revenue Guidance of $570-590 million vs. analyst estimates of 583.8 million
- Q1 Non-GAAP EPS Guidance of 41-46c vs. analyst estimates of 45c
- Full Year Revenue forecast to rise 6% with a 125-150bp rise in Non-GAAP operating margins
Considering that Autodesk, Inc. (NASDAQ:ADSK) has a history of guiding under, the forecasts for Q1 look pretty good when compared with analyst estimates. Before going any further I want to point out one aspect of the results and guidance that might have caused confusion.
From the chart it looks like Q4 revenues were great but Q1 estimates are weak. Don’t get exuberated and then alarmed. There was a pull forward of some $24 million in the quarter from promotional activity. This is going to be counterbalanced in the first half of 2014 so its full year results will end up binge back end loaded. Similarly after Q1, ADSK will come up against some easier comparables (you can see that in the Q2 & Q3 figures above). All of this is adequately expressed when looking at the 10% Non-GAAP EPS recorded for 2013 and then the weaker 8.8% forecast for 2014. In a sense some of the earnings have been brought forward into 2013 and paid for in weaker growth in 2014. No big deal.
Autodesk’s Investment Proposition
Imagine you are in a room full of its stockholders and you go around asking each one why they are here? One informs that you that he wants some cyclicality so he bought the stock. Another tells you that he likes the secular growth prospects inherent in shifting to a SaaS model and is holding it alongside companies like Intuit Inc. (NASDAQ:INTU) and Adobe Systems Incorporated (NASDAQ:ADBE). A third tells you that he is a value investor and loves the cash flow generation and rock solid balance sheet. A fourth is a growth investor, he loves the SaaS argument, buys the cyclicality and he thinks that increasing use of ever complex design in emerging markets is going to drive demand higher in future.
Get the picture?