Autodesk (ADSK) continued to report strong growth in its new subscription base during its fourth-quarter results, reflecting the firm’s ongoing business model transition. New model subscriptions (subscription, cloud, enterprise) as well as annualized recurring revenue outperformed our expectations for the quarter and the fiscal year. With the firm reporting better-than-expected subscriber results and guiding for another strong year in fiscal 2018 (net subscription additions of 600,000-650,000), we are encouraged by the firm’s ability to execute on its long-term recurring revenue strategy (recurring revenue to trend close to 90% in fiscal 2018) and keep customers within the Autodesk product family. We have taken a more aggressive stance on the firm’s capacity to generate greater medium-term margins based on operating leverage and shrewd cost management. After rolling our model forward one year and incorporating the more aggressive margin profile, we raise our fair value estimate to $80 from $60 and maintain our wide economic moat rating. In conjunction, we have decided to raise the uncertainty rating on the stock from medium to high to better reflect the transitionary nature of the business. Nevertheless, with Autodesk trading at a premium to our fair value estimate, we would recommend a wider margin of safety before investing in the name.
For the quarter, reported revenue slid 26% year over year to $479 million (fell 25% in constant currency). The decline was the result of Autodesk’s business model transition to more ratable revenue, which is recognized over a multiyear period, rather than upfront. Notably, new model subscriptions increased 155% to 1.09 million for the year, while net new subscriptions (including the loss of maintenance customers) increased 530,000.
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