Autodesk Can't Seem to Design a Growth Plan
It seems that although the company is doing well managing costs and maintaining its adjusted margins, there just isn't enough revenue growth to justify its current valuation.
Granted, profitability is the name of the game. And the company's management deserves a lot of credit for doing what needs to be done to produce on the bottom line. On the other hand, it seems that investors have become confused as to whether to treat the company as a growth stock or a mature company -- it can't be both.
The Quarter That Was
For the period ending in October, Autodesk reported revenue of $548 million, down $1 million from the same period a year ago. Its GAAP operating margin also declined, from 16% last year to only 6% this quarter. Revenue for Europe, the Middle East and Africa did an about-face, declining 3% to $196 million after increasing by 3% in Q3 fiscal 2012.
On the other hand, profitability was more respectable. Its non-GAAP operating margin increased 190 basis points to 26%, compared to 25% in the third quarter of fiscal 2012. As noted above, cash flow from operations continued to impress -- arriving at $157 million and growing 14% year over year.
Non-GAAP diluted earnings were 47 cents per share, beating analysts' estimates and increasing 7% from a year before.
I just don't believe this is enough to support a stock that is already trading at a price-to-earnings ratio of 31, when other software companies such as Microsoft (MSFT) and Adobe (ADBE) trade at much lower P/Es (14 and 22, respectively).
Adobe seems to present the much better value. In its most recent quarter, Adobe reported a 7% increase in revenue with roughly 5% in organic growth. The company's digital media segment grew 3% while its digital marketing segment produced a decent growth figure of 21%. Yet Adobe trades at a P/E ratio that is almost 10 points less than Autodesk's. So from the standpoint of revenue growth, Adobe presents the much better value.
For Autodesk, the good news is that the company continues to do well in the Americas, as evidenced by the 4% increase in revenue, which arrived at $209 million. However, this was offset by poor performances overseas in areas such as Asia-Pacific.
The company continues to struggle in emerging markets, which represent 15% of total revenue. Autodesk has seen sales eroded by 9% to just $80 million. Unfortunately, management does not appear confident that things are going to get any better.
In discussing the company's struggles to overcome macro concerns, management became extremely conservative with guidance. The company is now expecting fourth-quarter revenue in a range of $570 million to $600 million, with EPS between 43 cents to 51 cents. That's less than consensus estimates for revenue of $604 million and EPS of 54 cents.