Autodesk Update

ADSK : NASDAQ : US$41.94
Target: US$42.00

Autodesk is a global design software company that sells high function, low-cost 2D and 3D computer-aided design (CAD)
applications. The firm also provides visualization and simulation tools, which in conjunction with the company’s design apps,
enable customers to experience their ideas early in the design process through the development and analysis of virtual
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Applications

We really wanted to upgrade ADSK . However, our view is that while management is absolutely taking the correct steps to improve the firm’s future execution, the incremental improvement likely to be discussed at the analyst day isn’t quite sufficient to offset ongoing (but diminishing) macro headwinds we independently see in the design software space.

We would need to see either a more aggressive move to subscription or additional evidence that an improving macro is nearer. Therefore, we are closer to an upgrade (thus the price target increase on a higher multiple), but not quite there yet.
 Analyst day on tap.

Autodesk will hold an analyst day on October 2 in San  Francisco. We consider what the firm is likely to talk about – the most
important topic being the shift towards more subscription revenue that management hinted at off of the firm’s August 22 earnings call.
 Our conclusion: gradual steps toward subscription. Two weeks ago, Autodesk posted a fairly extensive discussion of its go-forward rental pricing plans – something that most of Wall Street seems to have missed. Autodesk plans to offer perpetual, subscription (access to upgrades), and rental models, but as best as we can tell there is not a material pricing
differential that will aggressively push customers toward subscription.
 Is this the right strategy? Yes.

Autodesk has very good software and an impressive franchise, but it is not so dominant that it can force-march customers too aggressively to subscription and cloud offerings. The firm, in our opinion, is gently pushing customers to a better place in terms of consuming ADSK software functionality – and we believe this will pay off for both parties. Customers will have the newest features and ADSK will see more predictable, less pirated revenue streams. In addition, the rental option could be a positive wildcard that brings in new users who didn’t want to be locked in for longer periods than the duration of a project.


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