Autodesk (ADSK) Beats Earnings Estimates: Should You Buy?

Design software company Autodesk (NASDAQ:ADSK) announced better-than-expected results in Q2 CY2024, with revenue up 11.9% year on year to $1.51 billion. Guidance for next quarter’s revenue was also better than expected at $1.56 billion at the midpoint, 1.1% above analysts’ estimates. It made a non-GAAP profit of $2.15 per share, improving from its profit of $1.91 per share in the same quarter last year.

"Autodesk continues to generate strong and sustained momentum both in absolute terms and relative to peers. Our success is fueled by our ability to capitalize on the attractive long term-growth trends we're seeing, including increases in global reconstruction and infrastructure. This is supported by our focused strategy to deliver more valuable and connected solutions for our customers, and by the proven durability of our business," said Andrew Anagnost, Autodesk president and CEO.

Founded in 1982 by John Walker and growing into one of the industry's behemoths, Autodesk (NASDAQ:ADSK) makes computer-aided design (CAD) software for engineering, construction, and architecture companies.

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As you can see below, Autodesk’s 12.8% annualized revenue growth over the last three years has been sluggish, and its sales came in at $1.51 billion this quarter.

This quarter, Autodesk’s quarterly revenue was once again up 11.9% year on year. On top of that, its revenue increased $88 million quarter on quarter, a strong improvement from the $52 million decrease in Q1 CY2024. This is a sign of acceleration of growth and very nice to see indeed.

Next quarter’s guidance suggests that Autodesk is expecting revenue to grow 10.5% year on year to $1.56 billion, in line with the 10.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 9.7% over the next 12 months before the earnings results announcement.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Autodesk has shown robust cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that enable it to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 19.5% over the last year, quite impressive for a software business.

Autodesk’s free cash flow clocked in at $203 million in Q2, equivalent to a 13.5% margin. This quarter’s result was good as its margin was 4 percentage points higher than in the same quarter last year, but we note it was lower than its one-year cash profitability. Nevertheless, we wouldn’t read too much into a single quarter because investment needs can be seasonal, causing short-term swings. Long-term trends carry greater meaning.

Over the next year, analysts predict Autodesk’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 19.5% for the last 12 months will increase to 29.2%, giving it more money to invest.

It was encouraging to see Autodesk beat on revenue and adjusted operating income despite a billings miss. Guidance was strong, with the company raising full year revenue guidance. Full year EPS guidance was also above expectations. Overall, this was a mixed quarter. The stock traded up 4.6% to $270 immediately following the results.

So should you invest in Autodesk right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.

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