Design software company Autodesk (NASDAQ:ADSK) reported results in line with analyst expectations in Q3 FY2023 quarter, with revenue up 13.6% year on year to $1.28 billion. However, guidance for the next quarter was less impressive, coming in at $1.31 billion at the midpoint, being 1.39% below analyst estimates. Autodesk made a GAAP profit of $198 million, improving on its profit of $136.7 million, in the same quarter last year.
Is now the time to buy Autodesk? Access our full analysis of the earnings results here, it's free.
Autodesk (ADSK) Q3 FY2023 Highlights:
- Revenue: $1.28 billion vs analyst estimates of $1.28 billion
- EPS (non-GAAP): $1.70 vs analyst expectations of $1.70
- Revenue guidance for Q4 2023 is $1.31 billion at the midpoint, below analyst estimates of $1.32 billion
- Free cash flow of $460 million, up 86.9% from previous quarter
- Gross Margin (GAAP): 90.6%, down from 91.8% same quarter last year
"We recently announced Autodesk Fusion, Forma, and Flow, our three industry clouds, which will connect data, teams and workflows in the cloud on our trusted platform," said Andrew Anagnost, Autodesk president and CEO.
Founded in 1982 by John Walker and growing into one of the industry's behemoths, Autodesk (NASDAQ:ADSK) makes computer-aided design (CAD) software for engineering, construction, and architecture companies.
The demand for rich, interactive 2D, 3D, VR and AR experiences is growing, and while the ubiquitous metaverse might still be more of a buzzword than a real thing, what is real is the demand for the tools to create these experiences, whether they are games, 3D tours or interactive movies.
Sales Growth
As you can see below, Autodesk's revenue growth has been mediocre over the last two years, growing from quarterly revenue of $952.4 million in Q3 FY2021, to $1.28 billion.
This quarter, Autodesk's quarterly revenue was once again up 13.6% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $43 million in Q3, compared to $67 million in Q2 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Guidance for the next quarter indicates Autodesk is expecting revenue to grow 8.16% year on year to $1.31 billion, slowing down from the 16.5% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 11.7% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Autodesk's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 90.6% in Q3.
That means that for every $1 in revenue the company had $0.91 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop that is still a great gross margin, that allows companies like Autodesk to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.
Key Takeaways from Autodesk's Q3 Results
With a market capitalization of $44.5 billion, more than $1.8 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.
We struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Autodesk. The company is down 2.81% on the results and currently trades at $203 per share.
Autodesk may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned.