What happened
Shares of Autodesk (ADSK 0.37%) are sinking today, down 11.4% as of 11:17 a.m. ET. The software provider posted strong fourth-quarter earnings for fiscal year 2023, but investors were disappointed with cash flow guidance for fiscal year 2024. Here are some more details about the earnings report and what it could mean for Autodesk stock.
So what
Autodesk's fiscal year 2023 -- covering the 12 months ending in January of this year -- looked solid across the board. Revenue grew across all its geographies, including 18% in the United States, with its four major segments (architecture/construction, manufacturing, media, and AutoCAD) all growing sales as well. The company showed strong profitability in the period, generating free cash flow of $2 billion for the full year.
So why are shares falling today? It all comes down to its free-cash-flow (FCF) guidance for fiscal year 2024, the year we are currently in. This year, management expects FCF generation to almost get cut in half to $1.2 billion, even though revenue is expected to grow by 7% to 9% year over year. While concerning at first glance and likely why the stock is down, this is not a huge deal for long-term shareholders.
Autodesk recently decided to switch from offering multiyear contracts -- and collecting all its cash up front from its business customers -- to an annual billing cycle. As this is now going into effect, the company's cash collections will go down temporarily in 2024 even though it is still signing new deals with customers at a record rate.
For example, its total remaining performance obligations grew 19% year over year in the quarter to $5.6 billion, which shows the predictability of its subscription business model.
Now what
After fiscal year 2024, Autodesk's FCF should start to grow in line with revenue again. Over the long term, management believes it can grow its revenue by 10% to 15% due to price increases, market expansion, and the growth of its new cloud platform business model.
At its current market cap of $42.3 billion, Autodesk stock looks cheap if you have the patience to look past fiscal year 2024. For a high-quality business that is essential to the work lives of architects, engineers, and designers, now could be a great time to pick up some shares of Autodesk stock with shares down 10% on this earnings report.
