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Looking Ahead: What to Watch for When Autodesk Reports Earnings This Week

By Brett Schafer - Updated May 24, 2021 at 10:34AM

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The architecture, engineering, and construction software firm has a lot of growth ahead of it.

Autodesk (ADSK -1.58%) is one of the world's largest software companies. The conglomerate, which targets the architecture, engineering, and construction (AEC) industries, has a lot of growth ambition and continues to acquire start-ups at a steady pace. On Thursday, May 27, Autodesk will release its first-quarter report. Here's what investors should watch out for when looking at those results.

Continued sales and cash flow growth

Revit and AutoCAD are Autodesk's legacy, low-growth products that target the design industry, specifically architects. The two business lines continue to be steady cash cows for the company and likely will continue to be in Q1. Last fiscal year, which ended in January of 2021, Autodesk generated $1.42 billion in free cash flow, which was around the same as the year prior, since it relaxed some payment schedules due to the COVID-19 pandemic.

Two construction workers talking on a project site.

Image source: Getty Images.

Investors should expect free cash flow, the most important profitability metric for a software subscription business like Autodesk, to continue marching upwards in the first quarter of this fiscal year.

At the end of last quarter, guidance was for close to $5 billion in billings this fiscal year, which would be around 20% growth year over year. Billings is the most important top-line metric for Autodesk because it is the cash the company is actually collecting from customers over a certain period.

Since it is a subscription business with long-term contracts, Autodesk recognizes revenue over the life of these deals even if all the cash is collected upfront. With the COVID-19 pandemic slowly getting behind us, Autodesk investors should be tracking whether the company is hitting the billings guidance that it set last quarter.

Construction cloud update

Autodesk's largest internal project is its growing suite of construction workflow tools called the Autodesk Construction Cloud. One of this group's flagship products is Autodesk Build, a project management software that helps builders, construction workers, and designers communicate and share project information from a single source. When reading the press release or conference call, it will be important to look for any material updates on the progress of Autodesk Build or other construction tools, as Autodesk has poured a lot of time and money into these products.

The company is trying to catch up with Procore (PCOR -1.72%), its main competitor within the construction software market, which IPO'd last Thursday and now sports a valuation of $10.9 billion. The construction management software market is supposed to add $500 million in annual spend between 2020 and 2024. Investors should look for Autodesk to capture some of this growth as a way to show progress with its construction cloud initiatives.

Fusion 360 subscribers

Fusion 360 is Autodesk's new strategy for trying to win market share within manufacturing, an industry Autodesk has lagged in for many years behind competitors like Dassault Systemes (DASTY -0.71%), Ansys (ANSS -1.05%), and PTC (PTC -0.89%). Fusion 360 is a cloud-based platform that caters to mechanical, industrial, and electrical engineers as well as machinists, with a wide array of software tools for all the different niches of the manufacturing market. It also sells at a low price point of $495 a year, compared to competitors that can cost upwards of $4,000 a year per user.

At the end of last quarter, there were 140,000 paying subscribers to Fusion 360 and 40 million free users of the educational versions of Fusion 360 and Tinkercad (another Autodesk product). Investors should look for another update on Fusion 360 paying subscribers this quarter and expect that number to climb steadily over the next few years. 

Plans for the Innovyze integration

Innovzye is Autodesk's largest recent acquisition. The $1 billion deal closed this March and helps Autodesk enter the water utility market. Public and private utility companies use Innovyze software to manage and analyze their assets, essentially helping them optimize their water infrastructure with cloud-based software.

According to Autodesk's acquisition press release, Innovyze has 3,000 customers across five continents, which shows the broad application of the software. Autodesk has not made Innovyze's financials public, so it is unclear at what valuation it bought the company, but it brings another group of large paying customers under the Autodesk umbrella. Since this is a new and fairly large acquisition, investors should watch out for any announcements on what Autodesk plans to do with Innovzye in this quarter's earnings report.

Overall, there is a lot to like about Autodesk's business. The company has many growth initiatives, including within the construction, manufacturing, and utility industries, which should help the business grow its billings and cash flow for many years to come. Shares of Autodesk do trade at a steep valuation multiple, with a forward price-to-free cash flow (P/FCF) of 38 based on the low end of this year's guidance.

But if you believe Autodesk can continue executing on its growth initiatives and grow its cash flow in Q1 and beyond, there's no reason to be scared just because it trades at a high earnings multiple, especially if you have a five-year or longer time horizon.

Brett Schafer owns shares of Autodesk. The Motley Fool owns shares of and recommends Autodesk. The Motley Fool recommends ANSYS, Dassault Systemes, and PTC. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Autodesk, Inc. Stock Quote
Autodesk, Inc.
ADSK
$217.20 (-1.58%) $-3.49
Dassault Systemes SE Stock Quote
Dassault Systemes SE
DASTY
$43.06 (-0.71%) $0.31
Ansys, Inc. Stock Quote
Ansys, Inc.
ANSS
$279.67 (-1.05%) $-2.98
PTC Inc. Stock Quote
PTC Inc.
PTC
$118.27 (-0.89%) $-1.06
Procore Technologies, Inc. Stock Quote
Procore Technologies, Inc.
PCOR
$62.80 (-1.72%) $-1.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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