Autodesk (ADSK)

3D design software company Autodesk (NASDAQ:ADSK) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 18% year on year to $1.85 billion. Guidance for next quarter’s revenue was optimistic at $1.91 billion at the midpoint, 2.6% above analysts’ estimates. Its non-GAAP profit of $2.67 per share was 6.9% above analysts’ consensus estimates.

Company Overview

Starting with AutoCAD in the 1980s and evolving into a comprehensive design ecosystem, Autodesk (NASDAQ:ADSK) provides software solutions for architecture, engineering, construction, manufacturing, and entertainment industries to design, simulate, and visualize projects.

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.

Autodesk's primary competitors include Dassault Systèmes (OTCMKTS:DASTY) with its SOLIDWORKS products, Bentley Systems (NASDAQ:BSY) in infrastructure software, Nemetschek Group (ETR:NEM) with its AEC solutions, PTC Inc. (NASDAQ:PTC) in CAD and PLM software, and Trimble (NASDAQ:TRMB) in construction technology.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Autodesk grew its sales at a 13.5% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.

Long-term growth is the most important, but within software, a half-decade historical view may miss new innovations or demand cycles. Autodesk’s annualized revenue growth of 13.5% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, Autodesk reported year-on-year revenue growth of 18%, and its $1.85 billion of revenue exceeded Wall Street’s estimates by 2.4%. Company management is currently guiding for a 16.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 11% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Autodesk’s billings punched in at $1.86 billion in Q3, and over the last four quarters, its growth was fantastic as it averaged 27.1% year-on-year increases. This alternate topline metric grew faster than total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Autodesk’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a competitive market and must continue investing to grow.

For software companies like Autodesk, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Autodesk’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 91.8% gross margin over the last year. Said differently, roughly $91.77 was left to spend on selling, marketing, and R&D for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Autodesk has seen gross margins improve by 0.3 percentage points over the last 2 year, which is slightly better than average for software.

Autodesk produced a 91.1% gross profit margin in Q3, marking a 1 percentage point decrease from 92.1% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Autodesk has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 22%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Autodesk’s operating margin might fluctuated slightly but has generally stayed the same over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Autodesk generated an operating margin profit margin of 25.4%, up 3.3 percentage points year on year. The increase was encouraging, and because its gross margin actually decreased, we can assume it was more efficient because its operating expenses like marketing, R&D, and administrative overhead grew slower than its revenue.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Autodesk has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors while maintaining a cash cushion. The company’s free cash flow margin averaged an eye-popping 30.7% over the last year, quite impressive for a software business.

Autodesk’s free cash flow clocked in at $430 million in Q3, equivalent to a 23.2% margin. This result was good as its margin was 10.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

Over the next year, analysts predict Autodesk’s cash conversion will slightly improve. Their consensus estimates imply its free cash flow margin of 30.7% for the last 12 months will increase to 32%, it options for capital deployment (investments, share buybacks, etc.).

Autodesk reported $2.29 billion of cash and $2.73 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.79 billion of EBITDA over the last 12 months, we view Autodesk’s 0.2× net-debt-to-EBITDA ratio as safe. We also see its $5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was great to see Autodesk’s full-year EPS guidance top analysts’ expectations. We were also glad its EPS guidance for next quarter exceeded Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 3.1% to $303.56 immediately following the results.

Updated: December 4, 2025 at 9:13 PM EST

Before making an investment decision, investors should account for Autodesk’s business fundamentals and valuation in addition to what happened in the latest quarter.

Autodesk isn’t a terrible business, but it isn’t one of our picks. To kick things off, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months. And while its admirable gross margin indicates excellent unit economics, the downside is its customer acquisition is less efficient than many comparable companies. On top of that, its operating margin hasn't moved over the last year.

Autodesk’s price-to-sales ratio based on the next 12 months is 8.5x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $365.14 on the company (compared to the current share price of $305.90).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.