Why Autodesk Stock Is Surging Today

By Timothy Green Markets Fool.com

What happened

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Shares of Autodesk (NASDAQ: ADSK) soared on Friday following the software company'sfirst-quarter report. Autodesk beat analyst estimates for both revenue and earnings by wide margins, and its guidance for the second quarter compared favorably to expectations. Two analyst upgrades added fuel to the fire, pushing Autodesk stock up 15.5% by noon EDT.

So what

Autodesk reported first-quarter revenue of $485.7 million, down 5% year over year but more than $15 million above the average analyst estimate. Autodesk is transitioning its business model to subscriptions, with the complete phaseout of license sales set for the second quarter of this year. This move pushes revenue that would otherwise be recognized up front into the future, negatively affecting the top line.

Image source: Autodesk.

Autodesk added 233,000 customers to its subscription plans during the quarter, boosting the total to 1.32 million. Maintenance subscriptions lost 47,000 customers, dropping to 1.97 million. Subscription plan annualized recurring revenue more than doubled year over year to $692 million.

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Non-GAAP earnings per share came in at a loss of $0.16, down from a loss of $0.10 during the prior-year period but $0.08 better than analyst forecasts. Lower revenue due to the transition is hurting the bottom line, although Autodesk managed to decrease its total non-GAAP expenses by 3% year over year.

Co-CEO and Chief Marketing Officer Andrew Anagnost discussed the next step in the transition: "We're executing well and making significant progress on our business model transition as evidenced by our first quarter results. We're starting the year from a position of strength and are excited to kick off the next phase of our transition when we offer our maintenance customers a simple, cost effective path to product subscription starting next month."

Now what

During the second quarter, Autodesk expects to produce between $488 million and $500 million of revenue along with a non-GAAP EPS loss between $0.14 and $0.18. This compares to analyst expectations of $488 million and a loss of $0.15.

Autodesk's strong quarter prompted analysts at Merrill Lynch and RBC to upgrade the stock, boosting their price targets to $115 and $125, respectively. With Autodesk stock trading for around 12 times annual sales, investors think the transition to subscriptions will eventually drive significant revenue and earnings growth. The company will need to deliver over the next few years for the stock to maintain its lofty valuation.

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Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.