2191

Autodesk (ADSK) Research Report: Q1 CY2024 Update


Full Report / June 11, 2024

Design software company Autodesk (NASDAQ:ADSK) reported Q1 CY2024 results topping analysts' expectations, with revenue up 11.7% year on year to $1.42 billion. The company expects next quarter's revenue to be around $1.48 billion, in line with analysts' estimates. It made a non-GAAP profit of $1.87 per share, improving from its profit of $1.55 per share in the same quarter last year.

Autodesk (ADSK) Q1 CY2024 Highlights:

  • Revenue: $1.42 billion vs analyst estimates of $1.40 billion (1.3% beat)
  • EPS (non-GAAP): $1.87 vs analyst estimates of $1.77 (5.7% beat)
  • Revenue Guidance for Q2 CY2024 is $1.48 billion at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed its revenue guidance for the full year of $6.04 billion at the midpoint (also reconfirmed full year operating margin guidance)
  • Gross Margin (GAAP): 90.3%, in line with the same quarter last year
  • Free Cash Flow of $487 million, up 14.1% from the previous quarter
  • Billings: $1.11 billion at quarter end, down 5.3% year on year
  • Market Capitalization: $47.13 billion

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.

Autodesk is best known for its flagship software, AutoCAD, which is used to design buildings, cars, and bridges. Being the first CAD software to run on PC, AutoCAD by Autodesk accelerated the shift from paper-based engineering designs to digital designs. Paper-based designs were error-prone, difficult to keep up to date and made cooperation between teams hard. Autodesk and its collection of design tools have made these problems a thing of the past. AutoCAD not only makes edits easy but also allows designers and architects to create a library of components that can be reused later, making the design process much more efficient.

Today, even after 40 years, the software is still an essential go-to tool for a number of industries and its functionality has expanded far beyond its original scope, for example it comes with built-in tools that can analyze and remedy weaknesses in a building’s design. Autodesk also makes software for the entertainment and gaming industries. One of the tools, Maya, is a 3D animation software that is used to add special effects to video games and movies, and was essential in making movies such as Avatar, The Matrix, and Spider-Man.

Design Software

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.

It is worth highlighting the competition in the design software space, which includes players such as Dassault Systèmes (OTC:DASTY), Adobe (NASDAQ:ADBE), Ansys (NASDAQ:ANSS), PTC (NASDAQ:PTC), and Bentley Systems (NASDAQ:BSY).

Sales Growth

As you can see below, Autodesk's revenue growth has been mediocre over the last three years, growing from $989.3 million in Q1 2022 to $1.42 billion this quarter.

Autodesk Total Revenue

This quarter, Autodesk's quarterly revenue was once again up 11.7% year on year. However, the company's revenue actually decreased by $52 million in Q1 compared to the $55 million increase in Q4 CY2023. Regardless, we aren't too concerned because Autodesk's sales seem to follow a seasonal pattern and management is guiding for revenue to rebound in the coming quarter.

Next quarter's guidance suggests that Autodesk is expecting revenue to grow 10.2% year on year to $1.48 billion, improving on the 8.7% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 10% over the next 12 months before the earnings results announcement.

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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 90.3% in Q1.

Autodesk Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.90 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite its recent drop, Autodesk still has an excellent gross margin that allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Autodesk's free cash flow came in at $487 million in Q1, down 31.8% year on year.

Autodesk Free Cash Flow

Autodesk has generated $1.06 billion in free cash flow over the last 12 months, a solid 18.7% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.

Key Takeaways from Autodesk's Q1 Results

It was encouraging to see Autodesk narrowly top analysts' revenue expectations this quarter. On the other hand, its billings unfortunately missed analysts' expectations and its gross margin decreased. Next quarter's revenue guidance was roughly in line with expectations and both full year revenue and operating margin guidance was reaffirmed, showing that the company is on track with no major surprises. The stock is flat after reporting and currently trades at $211.50 per share.

Is Now The Time?

When considering an investment in Autodesk, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We think Autodesk is a solid business. Although its revenue growth has been uninspiring over the last three years with analysts expecting growth to slow from here, its impressive gross margins indicate excellent business economics.

Given its price-to-sales ratio of 7.4x based on the next 12 months, the market is certainly expecting long-term growth from Autodesk. There are definitely things to like about Autodesk, and there's no doubt it's a bit of a market darling, at least for some. But when comparing the company against the broader tech landscape, it seems there's a lot of good news already priced in.

Wall Street analysts covering the company had a one-year price target of $275.16 right before these results (compared to the current share price of $211.50).

To get the best start with StockStory, check out our most recent Stock picks, and then sign up for our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds of the data being released. Especially for companies reporting pre-market, this often gives investors the chance to react to the results before everyone else has fully absorbed the information.