Why Autodesk (ADSK) Stock Is Nosediving

Anthony Lee /
2023/11/22 10:34 am EST

What Happened:

Shares of design software company Autodesk (NASDAQ:ADSK) fell 5.3% in the morning session after the company reported third quarter results and provided revenue guidance for the next quarter that fell short of Wall Street's projections. Additionally, the company expects headwinds to FY'2025 growth due to "macroeconomic drag on new subscriber growth, a smaller EBA (enterprise business agreement) renewal cohort with less upfront revenue mix, and the absence of EBA true-up payments." On the other hand, revenue and EPS topped Wall Street's estimates, driven by better-than-expected billings and outperformance in its Architecture, Engineering, and Construction ("AEC") division. Zooming out, it was a mixed quarter, with the weak growth outlook likely to raise concerns among investors. 

In a separate but related development, Piper Sandler downgraded the stock's rating from Overweight (Buy) to Neutral (Hold) and lowered the price target from $240 to $215. The analyst cited less optimistic FY'25 growth expectations and tempered margin outlook. This is a further drag on the stock as stock prices generally follow the direction of Wall Street's estimates.

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What is the market telling us:

Autodesk's shares are very volatile and over the last year have had 3 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock gained 8.8% on the news that the company reported an impressive "beat and raise" quarter. Second quarter results surpassed analysts' expectations for key topline metrics, including revenue, billings, and remaining performance obligation ( RPO - a leading indicator of revenue). In addition, earnings per share beat Wall Street's expectations. Moving ahead, guidance came in strong, with revenue projections for the next quarter and full year exceeding expectations, with management lifting the full year growth outlook. Similarly, the full year EPS guidance was raised and came in above consensus estimates. Overall, we think this was a decent quarter, showing that the company is staying on target.

Autodesk is up 11.9% since the beginning of the year, but at $207.33 per share it is still trading 9.6% below its 52-week high of $229.28 from February 2023. Investors who bought $1,000 worth of Autodesk's shares 5 years ago would now be looking at an investment worth $1,561.

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