Autodesk BUY

NASDAQ : US$58.41 BUY 
Target: US$70.00

Autodesk is a global design software company that sells highfunction,
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 have long argued that ADSK has the best, broadest suite of design, visualization,
simulation and collaboration tools of any firm in its space. The transition to subscription is
a means to help customers cost effectively access this suite with more alacrity than we’ve
seen in past years. This should put Autodesk in a very good position in 3-4 years. In the
short-run, the firm’s results were quite good. ADSK remains our favorite large cap GARP
stock. Reiterate BUY.
 Bullish items. Material billings upside with 25% growth in the quarter; all three major
geographies grew in the double digits on a constant currency basis; the number of
transactions >$1M grew by nearly 60% and the value of these deals increased over
200%; ADSK reported 121k net subscription additions (including 25k from Delcam),
well ahead of initial expectations, and increased guidance for this metric.
 Bearish items. Operating margins under near-term pressure driven by Delcam
dilution and higher incentive comp (driven by strong billings); strengthening dollar
will be a headwind to reported revenue growth; very limited visibility into the pace of
the perpetual license wind down, which will muddy consensus forecasts.
 The numbers: another good print. Autodesk reported Q3/15 revenue and non-GAAP
EPS of $618M and $0.25, which were respectively $17M and $0.02 ahead of our
estimates. Revenues were up 12% on a constant currency basis in the quarter and
non-GAAP operating margins were 13.0%. Calculated billings were $643M, which
was up 25% y-o-y and nicely ahead of our $539M estimate.
 Outlook:

Guidance for revenue, billings, and subscribers all inch higher. ADSK now
expects F2015 calculated billings to fall in the 15-17% growth range, which is well
ahead of the firm’s targeted 12% CAGR through F2018. We have adjusted down our
F2016 estimates as we are now forecasting the transition to subscription to have a
slightly more negative near-term impact on reported growth and profitability (which
we think could be even more pronounced in F2017 as the firm discontinues perpetual
licenses). We would remind investors that we will evaluate ADSK’s execution on
metrics like billings growth, subscriber count and cash flow during this transition.

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