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Autodesk (ADSK) to Report Q3 Earnings: What's in the Cards?

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Autodesk, Inc. (ADSK - Free Report) is set to report third-quarter fiscal 2019 results on Nov 20.

The company delivered average four-quarter positive earnings surprise of 36.1%. In the last reported quarter, the company reported earnings of 19 cents per share beating the Zacks Consensus Estimate by couple of cents. In the year-ago quarter, the company had reported a loss of 11 cents.

Revenues increased 22% year over year to $611.7 million in the last reported quarter and beat the Zacks Consensus Estimate of $601 million. The year-over-year growth was primarily driven by strong growth in subscription plan revenues, well-supported by higher product subscriptions.

For the third quarter, Autodesk expects revenues between $635 million and $645 million and earnings in the range of 24 and 28 cents per share.

The Zacks Consensus Estimate for the quarter to be reported is pegged at 26 cents per share, indicating year-over-year increase of 316.7%. Further, the consensus mark for revenues is pegged at $642.3 million, increasing 24.7% from the year-ago quarter.

Let’s see how things are shaping up for the upcoming announcement.

Factors Likely to Influence Q3 Results

In the last reported quarter, Autodesk achieved robust growth in annualized revenue per subscription (ARPS) and billings, Billings of $605 million surged 27% year over year.

Notably, Industry Collections generated significant ARPS coupled with a high renewal rate for the company, which increased 60% year over year and accounted for 40% of the total product subscriptions in the last reported quarter, which is a positive.

The company is well positioned to capitalize on the rapid adoption of computer-aided designing and manufacturing in both its domestic and overseas markets. We believe that higher demand for its cloud-based products, mobile products and design suites will drive the top line over the long term.

Autodesk benefited from growth in annual recurring revenue (ARR) from all major geographies, with APAC exhibiting the strongest growth. Subscription plan ARR increased substantially driven by growth in product subscription on both a year-over-year and sequential basis in the second quarter. Moreover, cloud ARR grew more than 20% year over year and 10% sequentially.

Additionally, the biggest contributor to cloud ARR was BIM 360 family of products, with the company adding 31,000 subs in the BIM 360 space in the previous quarter. We expect this momentum to continue in the to-be-reported quarter.

Notably, Autodesk acquired Assemble in the second quarter to enhance market positioning for BIM 360 across the design and construction phase, which is expected to boost revenues in the to-be-reported quarter.

Autodesk’s business transition from perpetual licenses to cloud-based services is expected to benefit it by boosting its subscriptions and deferred revenues. Also, in order to encourage customers to move from maintenance subscriptions to product subscription, management is offering discounts, which is increasing its subscription base. However, this is expected to negatively impact top-line growth in the near term.

In the previous quarter, Autodesk’s e-store accounted for a significant portion of the company’s digital sales and generated 20% of the product subscriptions. Management stated that e-store grew 70% year over year and captured a significant portion of the company’s AutoCAD business. Additionally, Autodesk’s direct and indirect business channels are growing at the same pace, which is a positive.  

However, the on-going business model transition has impacted top line of the company. Revenues have been adversely impacted by the movement of perpetual licenses to cloud-based services, as well as migration of maintenance plan customers to subscription plan offerings. This is expected to have a negative impact on the company’s revenues in the to-be-reported quarter.

Autodesk, Inc. Price and EPS Surprise

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Autodesk has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With a Favorable Combination

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat this quarter:

Hewlett Packard Enterprise Company (HPE - Free Report) has an Earnings ESP of +0.33% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

VMware, Inc. (VMW - Free Report) has an Earnings ESP of +0.55% and a Zacks Rank #3.

Palo Alto Networks, Inc. (PANW - Free Report) has an Earnings ESP of +0.06% and a Zacks Rank #3.

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