This week we look at the last of the 4 stocks that I track, Autodesk. This company is going through the business model change that I have discussed and I want to analyze that change a bit.
First off, let's give you the big picture numbers. Revenue was $478M and the company lost $0.28 per share. This was considered better than expected. A couple of other numbers is the "new model subscriptions were at an ARR of $529M for a total of 1.1M subscribers. It is this last bit that I want to talk about. I would be remiss if I didn't note that total ARR was $1.6B from 3.1M subscribers.
Time for some definitions. ARR stands for Annualized Recurring Revenue. What this means is that if you look at the subscription revenue of today and got it for all 12 months of a year, you would make a certain amount. So, $529M ARR means that the company has subscriptions of $44M a month for the new model. This new model is the rental of the software that Autodesk creates. They had older subscriptions for service, but they have stopped selling packages and now only rent them. This is the key to Autodesk's future.
The whole point of this model is that every month is the same. That instead of big bumps when new software comes out, there is a smooth income of money from the software that people rent. There is one other number that we need to get in here and that is Total Spend. Because of the business model change, it is hard to separate out Cost of Goods Sold (COGS) from Operating Expenses (OPEX). The non-GaaP Total Spend at Autodesk was $560M. On a monthly basis this would be $187M a month. That is the number that the company needs to reach to cover its expenses.
If I take an average of $44M per month at 1.1M subscribers, I end up with $40 per subscriber per month. If I needed to cover all $187M with that amount, I would need 4.7M new model subscribers. The good news is that there are these older subscriptions that account for $89M per month in revenue. If that remains constant, then I only need $98M from the new model. This equates to 2.5M subscribers, not too far out of reach. Additionally, the company could look at ways of cross marketing its products. This would mean the average monthly bill went up. If the average bill was $86 per subscriber, the company would be in good shape as well.
I am sure that Autodesk will be looking at both methods simultaneously and the number of new subscribers and the average value per subscriber will not need to be that high. The one number we don't know is churn. How many subscribers exit the new model? We just don't know. But that should give you some things to think about in choosing whether to put money into Autodesk.
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