As subscription plan recurring revenue overtakes maintenance plan recurring revenue, we've raised our fair value estimate on the wide-moat firm, but shares are rich.
By Andrew Lange | 03-06-18 | 10:50 PM | Email Article

 Autodesk’s fourth-quarter result illustrated the firm’s successful ongoing transition to a predominantly subscription-based business model. The company’s quarterly revenue was slightly ahead of our expectations, while non-GAAP EPS was within our forecast. The quarter marked an important milestone as subscription plan annualized recurring revenue, or ARR, overtook maintenance plan ARR. We did expect this growth dynamic, but the result cements our conviction in the efficacy of management’s long-term financial plan and business model transition. Although total net subscription additions were below our expectations at 608,000 for the year, management did note that this was the result of individuals adopting Industry Collections and shifting away from individual point products. However, to that end, total subscription ARR was higher than we had expected. After rolling our model forward one year, taking a fresh look at the computer-aided design market, and improving our long-term growth projections for the firm, we raise Autodesk’s fair value to $105 from $80 and maintain our wide economic moat rating. With the stock up notably in after-hours trade, we would wait for a considerable pullback before investing new capital.

Andrew Lange is an equity analyst for Morningstar.

For the quarter, total net revenue rose 16% year over year to $553.8 million. Subscription revenue growth was the driving force behind the result improving 105% year over year to $294 million. Geographically, Autodesk saw broad-based demand with Americas, EMEA, and Asia Pacific revenue all improving by double digits on a reported basis. We continue to see good demand prospects for the firm as it expands into other markets such as construction and simulation, while also increasing customer usage through subscription offerings and multifaceted Industry Collections.

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