Building a blueprint for success in uncertain times, Autodesk Inc. gears up to unveil its financial masterpiece in the highly anticipated first quarter of the 2024 fiscal year. As the stage is set for Autodesk’s highly anticipated first-quarter performance grand reveal on Thursday, May 25th, 2023, investors find themselves sketching a cautious portrait in the face of challenging macroeconomic conditions and lingering recessionary fears.
Will Autodesk draw a picture-perfect performance, or will the economic canvas cast a shadow on their earnings? The stage is set, and all eyes are on Autodesk as they face the ultimate test: continue the excellent act of exceeding the market’s lofty expectations, which has seen the company beat the market fourteen (14) out of the last fifteen (15) quarters, or sketch a different narrative altogether.
Technical
The global software could be hoping that the upcoming earnings release could continue propelling the company’s share, which has risen over 7% from the turn of the year’s share price of $190.62/share. The daily chart shows that the share price has firmly established a major resistance and a major support level at $235.12/share and $163.20/share, respectively, as it continues to trend higher, supported by a strong dynamic support.
Should the earnings report and the subsequent outlook entice buyers to enter from the current price, investors could keep a keen eye on the resistance level (R1) at $207.66/share for a potential long opportunity as the share continues its trajectory higher. The $207.66/share would offer an opportunity for an 11.68% upside as the share price converges towards its fair value of $235.12/share, using discounted cash flow model.
However, should the bears push the price lower, investors should keep an eye on the reaction of the share price around the dynamic support level, as a breakout below would expose the $185.15/share and $175.51/share support levels, levels of interest for potential long opportunities.
Fundamentals
It will be an interesting few days for the multinational software behemoth heading to its first quarter earning release on Thursday, with a miss or even a beat surely to cause a reaction with the majority of the market seemingly positioning itself for a disappointment. Analysts expect that the expectations for earnings per share (EPS) of $1.553/share from the revenue of $1.226 billion could just be too high to reach for the industry titan, with the market citing demand worries amid concerns of weaker macroeconomic demand and recessionary fears. It is worth noting that the revenue expectations are 4.79% from the company’s 2023Q1 figure of $1.17 billion, while the earnings expectations represent a 7.9% year-on-year rise from the 2023Q1’s figure of $1.43/share.
However, the financials and the company’s recent performance could suggest that the expectations for a disappointing quarter may be unfounded, and the software giant may be poised to continue its excellent run of late. In the fourth quarter of the previous fiscal year, Autodesk demonstrated consistent growth and demand in line with the third quarter. The transition from upfront to annual billings for multiyear contracts and a large renewal cohort contributed to billings and free cash flow. Notably, Autodesk closed its largest deal to date during the quarter, a 9-digit multiyear commitment billed annually, although it did not have a significant impact on financials at that time.
Total revenue for the quarter grew 9% as reported and 12% in constant currency, with subscription revenue leading the way, growing by 11% as reported and 14% in constant currency. The company’s key products, AutoCAD and AutoCAD LT revenue grew by 9%, while revenue from the architecture, engineering, and construction (AEC) segment saw an 11% increase. Manufacturing revenue grew 4%, but excluding foreign exchange movements and upfront revenue, it grew in the mid-teens. However, revenue from the media and entertainment (M&E) segment declined by 10%, primarily due to the absence of significant upfront revenue from the previous year. Excluding upfront revenue, the M&E segment still achieved a growth of 4%. Autodesk’s solid performance in fiscal year 2023 positions the company well for the year ahead. The company expects revenue growth to be around 8% at the midpoint for the fiscal year 2024, reaching approximately $5.36 billion to $5.46 billion. Excluding the impact from Russia and considering constant exchange rates, the revenue growth is estimated to be around 13%. Foreign exchange movements and the absence of recognized deferred revenue from Russia are expected to be headwinds for reported revenue growth.
In terms of geographic revenue breakdown, Autodesk experienced growth across all regions. Notably, its sales in the Americas increased by 6.5% year-over-year to $557 million, while the EMEA region saw a 6.1% rise to $348 million. Asia Pacific also demonstrated strong performance, with a 9.2% year-over-year growth to $217 million. These results indicate Autodesk’s global reach and ability to capitalize on opportunities in diverse markets.
While Autodesk’s revenue growth is commendable, the company has also focused on expanding its profitability. Operating margin improved to 20.5% for the quarter, reflecting effective cost management and operational efficiencies. Additionally, Autodesk reported diluted earnings per share of $0.87, surpassing Wall Street estimates and indicating the company’s ability to generate strong earnings.
From a forward-looking perspective, Autodesk is well-positioned for continued growth. The company is investing in research and development to drive product innovation, enabling it to stay ahead of competitors and maintain its market leadership. Furthermore, Autodesk is actively pursuing strategic partnerships and acquisitions to enhance its product offerings and broaden its customer base.
However, the picture below paints a concerning picture of the company’s share performance, which has lagged behind its competitors for the past five years and, more worryingly, lagged both the Nasdaq 100 Index (yellow line) and the S&P 500 Index (purple line). The company has returned a respectable 47.81% in the last five years but has lagged behind Roper Technologies and ANSYS Inc.’s total return of 67.28% and 86.21%, respectively. The company has also lagged behind the S&P 500 Index and Nasdaq 100 Index’s total return of 53.41% and 99.98%, respectively, for the same period. However, the higher P/E ratio compared to its’ competitors could be due to the company’s market position and the future growth prospects that the company could be exposed to.
The transition from upfront annual billings for multiyear customers will have a significant impact on free cash flow in the fiscal year 2024 and a smaller impact in the fiscal year 2025. This shift, along with foreign exchange movements and the cash tax rate, is expected to reduce free cash flow by approximately 41% compared to the fiscal year 2023.
Summary
With Autodesk’s earnings release is just around the corner, and the market is bracing itself for what could be a seismic event. The anticipation is palpable with recessionary fears looming and macroeconomic conditions taking centre stage. Will Autodesk’s performance defy expectations and rise above the turbulent tide? Or will it succumb to the pressures of an uncertain landscape? Investors eagerly await the verdict on Thursday, May 25th, as Autodesk unveils its financial masterpiece. Buckle up because, in this high-stakes game, even the finest design software may need a blueprint for success in these turbulent times.
Sources: TradingView, Reuters, KoyFin, Seeking Alpha, AutoDesk.
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