Categories Analysis, Technology

Autodesk (ADSK) is equipped to beat short-term challenges. Is the stock a buy?

The management reduced the midpoint of its billings and free cash flow guidance by approximately $150 million and $100 million, respectively

Over the past several months, design software company Autodesk, Inc. (NASDAQ: ADSK) has been busy ramping up its ecosystem to align the business with the ongoing digital transformation and to provide better service to its growing customer base.  

Shares of the Mill Valley-based company suffered one of the biggest losses after the earnings release this week and are currently trading at the lowest level in about twelve months. While the key financial metrics indicate stable performance, investors were let down by weak guidance as the management expects the supply chain issues and unfavorable foreign exchange rates to weaken cash flows.

Buy the Dip?

However, Autodesk is a market leader with great performance history and solid fundamentals, so the recent dip can be considered temporary. On the positive side, the stock has become cheaper after the pullback, offering a buying opportunity that is likely to bring handsome returns in the long term. Currently, ADSK is a promising stock that can add value to investment portfolios. Analysts predict a double-digit gain for the twelve-month period, with a strong buy rating.

Read management/analysts’ comments on quarterly results

During the pandemic, the company recorded impressive earnings and revenues that topped expectations, despite the widespread disruption. In the three months ended October 31, total revenues climbed 18% annually to $1.13 billion, driving up adjusted earnings to $1.33 per share. The core subscription business was the main growth driver.

Future Perfect

The continuing momentum in its architecture, engineering, and construction business bodes well for the company, considering the strong adoption of those solutions across the world. The company recently expanded its construction portfolio by launching Autodesk Construction Cloud and also upgraded its engineering platform Fusion 360.

Autodesk Q3 2022 earnings infographic

Meanwhile, the sequential decrease in demand – billings growth decelerated compared to the second quarter – could be a sign that the virus-driven boom is finally waning. Also, inflationary pressures created by supply chain issues and persistent labor shortages would require immediate attention.

From Autodesk’s Q3 2022 earnings conference call:

“In light of this macroeconomic uncertainty, as we enter Q4, we’re taking a pragmatic approach and are assuming that the supply chain, labor, COVID, and country-specific challenges will persist. As a result, we’re reducing the midpoint of our billings and free cash flow guidance by approximately $150 million and $100 million, respectively, for full-year fiscal ’22. Given the nature of our subscription business model and the greater degree of near-term visibility, it provides to us and our expectation of continued strong spend discipline, the midpoint of our full-year revenue and margin guidance is broadly unchanged.”

Autodesk’s competitor Adobe Inc (NASDAQ: ADBE) will be publishing its fourth-quarter results on December 16, amid expectations for a 14% increase in earnings to $3.20 per share on revenues of $4.09 billion, up 19% year-over-year.

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Last month, ADSK rebounded and moved close to the August peak, ending a losing streak, but it pared most of those gains after the earnings release and slipped into a one-year low.  The stock has lost around 20% since the beginning of the year.


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