Autodesk Inc. shares suffered their worst drop in more than a year after Wall Street focused on how the computer-assisted design software company’s shift in billing customers became a major drag on its annual forecast.
Autodesk’s stock became Friday’s worst performer on both the S&P 500 index but also the Nasdaq-100 as shares fell 13% to close at $192.53, their biggest one-day drop since Nov. 24 2021, when they dropped 15.5%. Meanwhile, the S&P 500 closed down 1.1%.
Late Thursday, Autodesk forecast earnings of $1.50 to $1.56 a share on revenue of $1.26 billion to $1.28 billion for the first quarter, and $6.98 to $7.32 a share on billings of $5.03 billion to $5.18 billion for the year.
Analysts at the time, however, had estimated $1.64 a share on revenue of $1.27 billion for the first quarter, and $7.38 a share on billings of $5.62 billion for the year, according to FactSet data.
Citi Research analyst Tyler Radke, who has a buy rating and a $265 target price, said the company’s shift to annual billings from multiyear contracts dragged on free cash flow, and said “management applied a more reasonable set of conservatism vs. prior guides,” when it came to the outlook.
The impact to free cash flow figured heavily in other notes. Autodesk forecast $1.15 billion to $1.25 billion free cash flow for the year, while Wall Street, on average, had been expecting $1.31 billion.
Of the 26 analysts who cover Autodesk, 16 have buy-grade ratings, eight have hold ratings, and two have sell ratings, along with an average price target of $193.15, according to FactSet data.
MoffetNathanson analyst Sterling Auty, who has an underperform rating and a $203 price target on Autodesk, said the “shift to annual billings is having an even larger impact on free cash flow for fiscal 2024 than what our estimates, and the Street, had anticipated after the preliminary outlook was given a quarter ago.”
JPMorgan analyst Stephen Tusa, who has a neutral rating, offered a mixed view of the free cash flow impact.
“All in, core fundamentals look solid here and we like the near term reset on FCF, but the weaker than expected escape velocity in future years is a lingering issue that makes the stock look less attractive near term, especially in the context of a mixed macro,” Tusa said.
Meanwhile, Stifel analyst Adam Borg, who has a buy rating on the stock and a $245 price target, said his focus is on the company March 22 investor day, and had expected a selloff given they were running a little hot versus the Nasdaq.
“While we acknowledge macro-uncertainty, we believe Autodesk has a number of drivers to sustain double-digit top-line growth and op-margin/FCF expansion in coming-years,” Borg said.