Autodesk Long-Term Hold

Leading 2D and 3D design software maker Autodesk (ADSK) announced their Q3 results yesterday. The stock might have taken a beating yesterday to close at $16.82 and is now hovering around $13.17, but the company’s performance makes me remain bullish on it.

Autodesk reported quarterly revenue of $607 million, representing growth of 13% over the year, and exceeded the market’s expectations of $604 million. EPS for the quarter of $0.56 was sequentially flat, but grew by 14% over the year. The Street was looking for EPS of $0.53.

Revenue from the Americas revenues declined by 1% over the year, and there was weakness some EMEA areas as well. Yet, revenue from EMEA grew 27% and from Asia Pacific grew by 12%. Emerging markets continued to report strong growth of 25% and represented a 19% contribution to total revenue.

By division, platform solutions and emerging business grew by 11% to $269 million, manufacturing solutions grew by 22% to $124 million, AEC solutions grew by 8% to $134 million and the media and entertainment segment grew by 9% to $73 million.

The 2D solutions segment declined 6%, primarily due to weak global sales of AutoCAD Architecture. Revenue from 3D solutions grew by 16% to $151 million, contributing 27% of total revenue.

Poor economic conditions have negatively affected Autodesk’s business environment. Many of their clients are unable to secure credit financing due to tighter credit restrictions. Budgets for construction and media and entertainment projects of all sizes are either deferred or cancelled. While the company’s larger manufacturing units are suffering from the slowdown of end user demand, the SME units are dealing with financing restrictions and thus cutting back on their investments. Autodesk has responded to these changes in the credit market by offering small rebates on LT (drafting and detailing software) and AutoCAD and setting up a 0% interest, deferred payment financing program for US and Canadian customers.

In terms of whether customers were buying fewer products and upgrading less frequently or just buying lower-cost products, CEO Carl Bass said on the results call, “We certainly haven’t seen people choosing different products […] 3D products, the more sophisticated, complex products actually did quite well. I think what we are seeing is the people [who] are choosing to buy new tools are looking for the best tools to make them most competitive. We are not really seeing a movement within our range towards lower-priced products”.

For the fourth quarter, the company guided for revenue of $525 to $550 million and GAAP EPS of $0.13 to $0.19. Autodesk plans to continue and expand cost reduction measures taken in the previous quarter, such as a hiring freeze and cuts in discretionary spending.

As mentioned above, the stock is trading around $13.17 with a market cap of about $2.83 billion. This is a long term hold stock.