Autodesk (NASDAQ:ADSK) Reports Q3 In Line With Expectations But Quarterly Guidance Underwhelms

Full Report / January 11, 2023
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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.

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

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.

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 two years, growing from quarterly revenue of $952.4 million in Q3 FY2021, to $1.28 billion.

Autodesk Total Revenue

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.


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.

Autodesk Gross Margin (GAAP)

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.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Autodesk's free cash flow came in at $460 million in Q3, up 78.9% year on year.

Autodesk Free Cash Flow

Autodesk has generated $1.84 billion in free cash flow over the last twelve months, an impressive 37.6% of revenues. This robust FCF margin is a result of Autodesk asset lite business model, scale advantages, and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from Autodesk's Q3 Results

Sporting a market capitalization of $44.5 billion, more than $1.8 billion in cash and with positive free cash flow over the last twelve months, we're confident that Autodesk has the resources it needs to pursue a high growth business strategy.

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, it seems to us that this was a complicated quarter for Autodesk. The company currently trades at $193.44 per share.

Is Now The Time?

When considering Autodesk, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think Autodesk is a good business. However, its revenue growth has been mediocre, and analysts expect growth rates to deteriorate from there. But on a positive note, its bountiful generation of free cash flow empowers it to invest in growth initiatives, and its impressive gross margins are indicative of excellent business economics.

The market is certainly expecting long term growth from Autodesk given its price to sales ratio based on the next twelve months is 8.3x. There is definitely a lot of things to like about Autodesk and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

The Wall St analysts covering the company had a one year price target of $249.9 per share right before these results, implying that they saw upside in buying Autodesk even in the short term.

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