Its raining here in Sonoma County and that is a wonderful thing. We need the water and this is our time of year to get it. We get so much of the Sun that we need our rain as well. This week I want to talk about Autodesk's earnings from last month (just before the Holiday). The company had almost $600M in Revenue and lost almost $44M in Q3. The problem that as I have said before that Autodesk is in a conversion from purchased software to leased software (i.e. a subscription based service). The problem is that we are in the middle of this conversion so comparisons to the past are not reasonable. Nor can we understand how the company is doing until the conversion is complete.
Why is this so hard? Well, when you outright buy something the company generally gets to declare Revenue. Yes there are some exceptions under Sarbanes-Oxley, but I will try to keep it simple. When you sell a subscription you earn that money over time, even if the user buys a year at a time. In that kind of model, generally you would take 1/12th of the annual payment each month. To complicate things further, packages are owned outright when bought by customers. They generally do not buy again until there is a new version with features that they want. They do often get maintenance updates for bugs in the current version (and this is often a paid for service). By converting to a subscription model, customers will pay more over time but the company will need to deliver updates and bug fixes on a regular basis.
So, why does this create a problem? You can not directly translate the number of licenses of each product that Autodesk sells into subscriptions that it will sell. Now from the way I read the questions, it has not provided good guidance around how many subscribers will provide replacement revenue for their existing business. Now it might be possible to calculate this from the store, but the questions indicate that nobody has done so to date. On top of that there are multiple ways that the customers can buy subscriptions. This makes the reporting of Net Adds - the number of customers added subscriptions minus those who left - rather meaningless. If Autodesk wanted to make this easier for analysts it would have to provide information like ARPU and Churn data. ARPU is Average Revenue Per User which is a metric on how much an average customer buys on a monthly basis. Churn is the amount of customer loss on a monthly or quarterly basis. This is how most subscription companies report the kind of information that analysts and investors want.
Until we are through this transition, any investment in Autodesk carries risk in this change in execution. However, Autodesk is a fine company that has been around a long time. They are likely to figure this out, even if they stumble through the transition. For the average investor, I would say be cautious until you here something that you can directly relate to.
Have a great day and stay dry!
Jim Sackman Focal Point Business Coaching Business Coaching, Executive Training, Sales Training, Marketing
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