Investments In Cloud And AI Will Expand Future Customer Ecosystem

Key Takeaways

• Autodesk's strategic investments in cloud and AI leadership are key to driving long-term revenue growth and expanding the customer ecosystem.
  
• Transitioning to a new transaction model enhances revenue stability through predictable, recurring streams, while share repurchases signal cash generation confidence.
  
• Economic uncertainties and restructuring might hinder revenue growth, while high reliance on renewals and share buybacks may limit long-term diversification and strategic investments.

Catalysts

Provides 3D design, engineering, and entertainment technology solutions worldwide.

• Autodesk's go-to-market optimization phase emphasizes increasing sales and marketing efficiency through enhanced digital self-service and tighter channel partner integration, projected to improve non-GAAP operating margins in fiscal '25 and fiscal '27. (Net margins, operating earnings)
  
• Investments in cloud, platform, and AI leadership aim to drive revenue growth by delivering connected solutions and supporting an expanded customer ecosystem, seen as critical for future growth beyond fiscal '26. (Revenue, long-term growth)
  
• Autodesk's focus on high-growth areas like Construction and Fusion, leveraging industry cloud and AI, highlights anticipated sustainable growth with continued investment in these strategic priorities. (Revenue growth, market expansion)
  
• The transition to a new transaction model and increased direct revenue (up 35% in constant currency) indicate a shift to more predictable and recurring revenue streams, potentially enhancing revenue stability and growth. (Revenue, cash flow)
  
• Planned share repurchases, with a target to buy back between $1.1 billion and $1.2 billion of shares in fiscal '26, indicate confidence in cash generation ability and are expected to boost earnings per share. (Earnings, shareholder value)

Autodesk Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Autodesk's revenue will grow by 11.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.1% today to 21.1% in 3 years time.
• Analysts expect earnings to reach $1.8 billion (and earnings per share of $8.18) by about March 2028, up from $1.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 47.7x on those 2028 earnings, down from 52.3x today. This future PE is greater than the current PE for the US Software industry at 29.5x.
• Analysts expect the number of shares outstanding to decline by 1.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.53%, as per the Simply Wall St company report.

Autodesk Future Earnings Per Share Growth

Risks

• Economic uncertainties and macro environment challenges are causing customer hesitancy, which could impact Autodesk's ability to secure new business and thus affect future revenue growth.
  
• The restructuring and go-to-market optimization phase may introduce short-term disruption risks, particularly with a significant sales and marketing headcount reduction, possibly affecting revenue growth and operational efficiency.
  
• Ongoing transitions, such as the shift to the new transaction model, introduce complexities that might not immediately yield the expected improvements in billing and margin efficiencies, potentially impacting net margins and earnings.
  
• Autodesk's capability to expand new business growth is limited by the slower-than-expected channel productivity improvements and a high reliance on existing customer renewals, which could constrain revenue growth potential.
  
• The expectation of increased free cash flow and aggressive share buybacks might limit flexibility for strategic investments or acquisitions that could expand revenue streams, impacting long-term revenue growth and diversification.

Valuation

• The analysts have a consensus price target of $335.29 for Autodesk based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $430.0, and the most bearish reporting a price target of just $275.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.4 billion, earnings will come to $1.8 billion, and it would be trading on a PE ratio of 47.7x, assuming you use a discount rate of 7.5%.
• Given the current share price of $273.08, the analyst price target of $335.29 is 18.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.