May 1, 2017 07:54 AM GMT
Autodesk
Autodesk
Clear Path to Higher Value
Emerges; Upgrading to OW
Stock Rating
Overweight
Industry View
Attractive
Price Target
$115.00
The path to yielding more FCF off a sticky customer base has
become clearer, in our view, as the subscription model
transition progresses. As investors gain more confidence in
this path, multiples have room to move higher, in-line with
peers. We upgrade to OW, with a $115 PT.
WHAT'S
CHANGED
Autodesk
Rating
Price Target
To
From
Equal-weight Overweight
$69.00
$115.00
Driving More FCF from the Base. Autodesk's dominant positioning in their core
Architectural, Engineering and Construction (AEC) business has not been a
debate amongst investors, what has been debated is the company's ability to
effectively yield FCF off of that base. With the path to an all subscription model
now clear, we see multiple avenues for Autodesk to better yield off of that
sticky customer base and reduce the volatility in earnings, a combination which
should drive the multiple and stock price higher. Our revised transition model
conservatively forecasts ~$5 in FCF/share by FY20 and ~$9 by FY23, applying a
20X EV/FCF multiple (a discount to peers) against this FCF and discounting back
at 12.5% drives $115 price target – 30% potential upside from current levels. We
would note, our bull case scenario of $11 in FY23 FCF/share, which aligns to
management's long-term targets, implies a $141 NTM valuation.
What Drives the Increased FCF Yield?
Better Monetizing the 20+ Million Installed Base: Autodesk has detailed
several initiatives intended to yield more dollars from existing users,
including: higher pricing for the existing 2M maintenance customers,
pushing the 2.2M active users not paying maintenance into a subscription,
reducing piracy among a base of 12M users not paying Autodesk at all and
enticing previously engaged users back to Autodesk with lower-priced
subscription offerings. However, our forecast conservatively looks for core
gross subscription adds to remain within the historical range of 700-800K
per year, with Average Recurring Revenue (ARR) per subscriber increasing
at a 4% 5-year CAGR.
Growing the Customer Base: Autodesk's newer cloud-based offerings in
areas such as collaboration, product lifecycle management, and
construction bring them into new markets and enable upsell of additional
MORGAN STANLEY & CO. LLC
Keith Weiss, CFA
EQUITY ANALYST
Keith.Weiss@morganstanley.com
Stan Zlotsky, CFA
EQUITY ANALYST
Stan.Zlotsky@morganstanley.com
Hamza Fodderwala
RESEARCH ASSOCIATE
Hamza.Fodderwala@morganstanley.com
Autodesk ( ADSK.O, ADSK US )
Software / United States of America
Stock Rating
Industry View
Price target
Shr price, close (Apr 28, 2017)
Mkt cap, curr (mm)
52-Week Range
+1 212 761-4149
+1 212 761-1204
+1 212 761-1083
Overweight
Attractive
$115.00
$90.07
$19,895
$90.94-49.82
Fiscal Year Ending
Fiscal Year Ending
ModelWare EPS ($)
Prior ModelWare EPS
($)
P/E
Consensus EPS ($)§
Div yld (%)
01/17 01/18e
01/17
01/18e 01/19e
01/20e
01/19e 01/20e
(1.63)
(1.71)
(1.87)
(0.94)
(0.30)
1.35
NM
(0.56)
0.0
NM
(0.60)
0.0
NM
1.17
0.0
1.64
-
55.0
3.14
0.0
Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare
framework
§ = Consensus data is provided by Thomson Reuters Estimates
e = Morgan Stanley Research estimates
QUARTERLY MODELWARE EPS ($)
Quarter
Quarter
Q1
Q2
Q3
Q4
2017
2017
(0.38)
(0.25)
(0.46)
(0.55)
2018e
2018e
Prior
Prior
(0.21)
(0.22)
(0.23)
(0.28)
2018e
2018e
Current
Current
(0.57)
(0.51)
(0.44)
(0.35)
2019e
2019e
Prior
Prior
0.17
0.29
0.39
0.49
2019e
2019e
Current
Current
(0.24)
(0.18)
(0.02)
0.15
e = Morgan Stanley Research estimates
Morgan Stanley does and seeks to do business with
companies covered in Morgan Stanley Research. As a
result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of
Morgan Stanley Research. Investors should consider
Morgan Stanley Research as only a single factor in making
their investment decision.
For analyst certification and other important disclosures,
refer to the Disclosure Section, located at the end of this
report.
1
functionality into existing customers. Autodesk management points to
>200M potential global users, while we model 2.2 million gross Cloud
subscription adds over the next 5 years.
More Efficiently Selling into the Base: Moving to a subscription licensing
model and cloud based applications allows Autodesk to shift sales
towards a more direct (and efficient) distribution model. We think the
company can shift direct sales from ~20% of total in FY16 to 50%+ by
FY23. Along with a more focused development effort, Autodesk aims to
maintain <1% expense CAGR through FY20.
Lower Earnings Volatility Should Drive the Multiple Higher. While demand
trends in Autodesk's core AEC and Manufacturing markets will remain cyclical, a
subscription model should significantly dampen the volatility of earnings.
Through their transition, we expect >90% of Autodesk's revenue base to become
recurring in nature versus ~25% when we last entered a recession. The '08/'09
recession saw Autodesk license revenues drop 39% YoY and EPS fall ~50% YoY.
If gross subscription adds saw a similar 40% decline in FY20, our EPS estimate
only falls by 11%. Through the last cycle, ADSK traded at an average EV/FCF
multiple of 17X – our $115 price target affords them a ~20% premium to this
multiple due to the lower volatility. However, this 20X multiple remains 10%
below their comp group despite a similar FCF growth profile.
Where Could We Be Wrong? 1) Cloud 360 and EBA subscriptions fail to gain
meaningful traction; 2) the reduced expense growth envelope limits the
company's ability to invest in new products, slowing the pace of innovation and
gross sub adds; 3) pressure applied to convert maintenance users to new model
subscriptions drives higher than expected attrition within the customer base and
4) an economic recession could reduce the level of gross subscription adds
below our forecasts – however, even in a downturn similar to '02/'03, our model
still suggests a value of ~$93, limiting downside risk.
2
Risk Reward
Risk Reward
New Products & Model Transition Should Support Higher Sustained Growth at
New Products & Model Transition Should Support Higher Sustained Growth at
Autodesk
Autodesk
$
160
140
120
100
80
60
40
20
$90.07
$141.00 (+57%)
$115.00 (+28%)
$64.00 (-29%)
0
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Price Target (Apr-18)
Historical Stock Performance
Current Stock Price
WARNINGDONOTEDIT_RRS4RL~ADSK.O~
Price Target
Price Target
Derived from base case scenario
$115
$141
BullBull
Discount of 20x EV/FCF CY22e FCF/share of $11.26
Discount of 20x EV/FCF CY22e FCF/share of $11.26
Management Executes Transition Inline with Plan. Subscription transition
occurs inline with management plan, as subscriptions reach 7.9M in FY23, while
expenses grow at 3% CAGR, resulting in FCF of $11.26/share in FY23. Applying a
20x EV/FCF multiple to the rapidly growing cash generation profile and a 12.5%
discount rate yields a value of $141/share.
$115
BaseBase
Discount of 20x EV/FCF CY22e FCF/share of $9.21
Discount of 20x EV/FCF CY22e FCF/share of $9.21
Smooth Transition to Subscriptions. Autodesk is successful in smoothly
ramping to a base of 7.4M subscriptions by FY23, while expenses grow at a 3.5%
CAGR, yielding FCF/share of $9.21. 20X that FCF, discounted back at 12.5%, yields
a one-year value of $115/share. Our 20X FCF multiple is a premium to
Autodesk's historical FCF multiple, but below peer average of 22x.
$64
BearBear
Discount of 17x EV/FCF CY22e FCF/share of $6.01
Discount of 17x EV/FCF CY22e FCF/share of $6.01
Prolonged Macro Downturn Delays Transition. In our bear case, we include the
risk of prolonged recession around the half-way point of the transition with
modest recovery thereafter, which pushes out the FY20 goal posts by three
years as subscription acquisition CAGR slows. End result would be $6.01/share
in FY23 and a 17x EV/FCF with 12.5% discount rate, arriving at a $64 value.
Investment Thesis
Accelerated shift to recurring revenues in
ADSK’s business model transition is likely to
fuel optimism in the long-term story as
investors focus on billings as a gauge of
business momentum, in light of possible near-
term revenue declines.
Cloud 360 offerings have been gaining
feature maturity and are starting to see wider
adoption. Customers realize product value of
subscription, which drives model transition
and forward billings/ARR CAGRs.
Success of ADSK’s desktop subscription
adoption strategy will be important to
increasing ARR and sustaining long-term
growth.
At 20X our FY23 FCF/share and discount
rate of 12.5%, we arrive at our one-year base
case PT of $115/share. Our 20X FCF multiple
is a slight premium vs. ADSK's 17x historical
average, but still at a discount to peers like
ADBE at 22x. We feel that a slight historical
premium is warranted considering Autodesk's
higher value recurring revenue streams post
transition.
Key Value Drivers
Business model transition.
Broadening product line - specifically into
vertical-focused products and 3D.
Strong exposure to emerging markets.
Leveraging direct distribution channel.
Risks to Achieving Price Target
Ability of management team to navigate
model transition and drive the necessary
conversion of customer base to recurring.
High correlation to the macro environment.
High dependence on construction and
manufacturing industries, with competitive
pressure in the latter.
3
Executive Summary
Any Way You Slice It, We See a Positive Risk-Reward Skew. After restructuring our
model and digging into the updated metrics and path of the subscription transition, we
take a more bullish view on Autodesk heading into FY18. Our analysis indicates that
even if management's long-term goals prove too aggressive, there should still be upside
to ADSK's stock. Further, at current levels investors appear to be already pricing in a
recession within the next 5 years. We are encouraged by the levers that are fully within
management's control, and could drive this model transition – maintenance price
increases, expense structure focus and capital returns – smoothing out the path through
FY20 and beyond. We have revised our subscription transition model to better align
with Autodesk's evolving strategy and to enable investors to assess potential outcomes
of various scenarios. An accelerated ramp to recurring subscriptions along with
improving profitability drives our $115 price target and implies ~30% upside from current
levels.
Given the macro sensitivity of Autodesk's business, we continue to acknowledge the
likelihood of adoption disruptions between today and FY23. Therefore, we extend our
scenario analysis to introduce the risk of a mild recession in the next several years, which
pushes out management's FY20 goal posts by roughly two years. Applying a "macro
adjusted" scenario to our base case numbers (which are already below management's
long-term targets), we arrive at $93/share - still slightly above current levels. While the
potential for a prolonged macro downturn drives our Bear Case $64 and ~30%
potential downside from current levels, we believe this sets up favorably against ~60%
upside under our Bull Case value of $141, which implies achievement of management's
long-term targets. Given the attractive risk-reward skew, we upgrade our rating from
Equal-weight to Overweight with $115 PT.
What's Changed Our View?
Increased Confidence in Subscription Adds Driven By Cloud Adoption: We see
Autodesk's push to the Cloud democratizing their product set and bringing them into
markets that could previously not afford them (reducing piracy) or reengaging with
inactive users. Our model points to gross sub adds of 870K in FY18 ramping to 991K in
FY19 and 1.1M in FY20. However, excluding cloud-based subscriptions, we see core gross
desktop subscription adds between 700-800K per year through FY20, inline with the
historical average range. (Exhibit 2)
Ability to Better Monetize the Base: In order to accelerate its shift from maintenance to
recurring subscriptions, we've seen management present further levers in its ability to
monetize the base with the most direct impact coming from expected price increases
within the maintenance base from FY18 thru FY20. Pushing the maintenance base to a
higher price point likely suggests pricing power above management's targeted 3% ARPS
CAGR from FY16-FY20, We could also see potential upside to our ARPS estimates, as
the company enables a growing share of its business to be driven directly (allowing
Autodesk to keep more of the end user revenue).
4
Attractively Valued Against the Peer Group: An ongoing shift to recurring revenue is
likely to narrow the valuation gap vs. ADSK's peer group average at ~22x EV/CY18 FCF
(Exhibit 8). Our base case $115 PT implies a 20x EV/FCF multiple, which could prove
conservative as the subscription transition continues ahead of management plan.
Assessing the Scenarios:
Base Case ($115/share) = A Smooth Transition, But Below Management Plan: Our base
case estimates imply a successful transition with 5.2M total subscriptions by FY20,
slightly below management's targeted 5.4M, and ~7.4M subscriptions by FY23. With
overall expenses largely flat through FY20, we expect expense growth to pick up with
~8% CAGR from FY20-FY23, resulting in FCF/share of $4.94 in FY20 and $9.21 in FY23,
below management's targeted FCF/share of $6+ in FY20 and $11 in FY23. At 20X our
FY23 FCF/share and discount rate of 12.5%, we arrive at our one-year base case PT of
$115/share and ~30% potential upside. Our 20X FCF multiple is a slight premium vs.
ADSK's 17x historical average, but still at a discount to peer average at 22x (Exhibit 8). We
believe that a premium is warranted considering Autodesk's move to higher value and
more durable recurring revenue streams.
Exhibit 1: Our Base Case Looks for 5.2M Subscriptions in FY20 and $4.93 in FCF per Share in
FY20
Base Case Price Target: $115
Subscription Base (M)
Gross Subscription Adds (M)
FY22e
FY19e
FY21e
FY20e
FY16
FY17
2,584
651
7%
-5%
9%
$2,866
$2,223
4.4%
10.6%
$1.49
230
3,113
760
17%
-3%
17%
$2,299
$2,157
-3.0%
-6.2%
$0.42
224
FY18e
3,742
870
15%
4%
25%
$2,214
$2,157
0.0%
-6.5%
$0.39
222
4,435
991
14%
8%
28%
$2,790
$2,161
0.2%
11.9%
$2.55
217
5,204
1,100
11%
9%
28%
$3,532
$2,226
3.0%
27.4%
$4.94
209
5,985
1,150
5%
1%
16%
$4,070
$2,404
8.0%
35.0%
$6.71
203
6,708
1,173
2%
0%
12%
$4,560
$2,620
9.0%
38.0%
$7.93
201
FY23e
7,362
1,185
1%
1%
11%
$5,053
$2,830
8.0%
40.0%
$9.21
200
YoY Growth
ARPS YoY Growth
ARR YoY Growth
Billings (M)
Total Expense (M)
YoY Growth
Operating Margin
FCF/Share
Share Count (M)
Source: Company Data, Morgan Stanley Research Estimates
Bull Case ($141/share) = Management Executes Transition Inline with Plan. Our bull
case scenario assumes the subscription transition plays out inline with management
expectations outlined during 2016 Investor Day. This implies a 20% subscription CAGR
from FY16-FY20, reaching a base of 5.4M in FY20 and 7.9M in FY23. A accelerated
transition to recurring subscriptions combined with a relatively flat expense base drives
further upside to operating leverage, resulting in 33% op margin in FY20 and 44% in
FY23. FCF per share comes inline with management targets at $6.11 in FY20 and $11.26 in
FY23. Applying a 20x EV/FCF multiple (above historical avg but below peer ADBE at 22x)
to $11.26 FY23 FCF/share yields our bull case PT of $141 and ~60% potential upside
from current levels.
Exhibit 2: Our Bull Case Assumes Management Executes Transition Inline with Plan. Resulting in
5.4M Subscriptions in FY20 and $11+ in FCF/Share in FY23
Bull Case Price Target: $141
Subscription Base (M)
Gross Subscription Adds (M)
FY19e
FY22e
FY20e
FY21e
FY17
FY16
2,584
651
7%
-5%
9%
$2,866
$2,223
4.4%
10.6%
$1.49
230
3,113
760
17%
-3%
17%
$2,299
$2,157
-3.0%
-6.2%
$0.42
224
FY18e
3,781
889
17%
4%
26%
$2,232
$2,135
-1.0%
-5.2%
$0.58
221
4,570
1,057
19%
8%
30%
$2,861
$2,118
-0.8%
14.8%
$3.05
215
5,450
1,227
16%
9%
30%
$3,680
$2,118
0.0%
33.0%
$6.11
204
6,336
1,282
5%
0%
17%
$4,271
$2,309
9.0%
40.2%
$8.25
196
7,154
1,307
2%
0%
13%
$4,812
$2,562
11.0%
42.3%
$9.73
191
FY23e
7,895
1,321
1%
1%
12%
$5,356
$2,819
10.0%
43.5%
$11.26
187
YoY Growth
ARPS YoY Growth
ARR YoY Growth
Billings (M)
Total Expense (M)
YoY Growth
Operating Margin
FCF/Share
Share Count (M)
Source: Company Data, Morgan Stanley Research Estimates
5
Bear Case ($64/share) = Prolonged Economic Downturn With Modest Recovery
Thereafter: In our bear case, we include the risk of potential prolonged recession, which
pushes out FY20 targets by three years as gross subscription adds decline by 20% in
FY19 with a modest recovery to 11% growth the year after. This drives a 15% subscription
CAGR thru FY20 and 20% ARR growth during the same period. While management
keeps expenses flat thru FY20, our bear case FCF/share comes to $3.18 in FY20 and
$6.01 in FY23 (3 years behind management plan). Applying ADSK's historical average 17x
EV/FCF multiple on FY23 FCF/share and 12.5% discount rate, we arrive at our bear case
$64 PT.
Exhibit 3: Our Bear Case Assumes a Prolonged Economic Recession Beginning in FY19 and
Pushes Out Subscription and FCF Goalposts By Roughly 3 Years
Bear Case Price Target: $64
Subscription Base (M)
Gross Subscription Adds (M)
FY19e
FY22e
FY21e
FY20e
FY17
FY16
YoY Growth
ARPS YoY Growth
ARR YoY Growth
Billings (M)
Total Expense (M)
YoY Growth
Operating Margin
FCF/Share
Share Count (M)
Source: Company Data, Morgan Stanley Research Estimates
2,584
651
7%
-5%
9%
$2,866
$2,223
4.4%
10.6%
$1.49
230
3,113
760
17%
-3%
17%
$2,299
$2,157
-3.0%
-6.2%
$0.42
224
FY18e
3,695
832
10%
4%
23%
$2,190
$2,178
1.0%
-7.9%
$0.16
222
4,050
665
-20%
9%
19%
$2,587
$2,204
1.2%
7.2%
$1.48
219
4,500
739
11%
9%
21%
$3,109
$2,226
1.0%
20.4%
$3.18
215
4,979
772
5%
2%
13%
$3,495
$2,338
5.0%
27.6%
$4.38
212
5,426
787
2%
1%
10%
$3,834
$2,478
6.0%
31.3%
$5.16
213
FY23e
5,832
795
1%
2%
9%
$4,181
$2,602
5.0%
34.1%
$6.01
214
Realizing the Value - What We're Looking For. Heading into FY18, we expect a faster
subscription model transition than in prior years with likely conservative targets for net
adds and ARR growth. We expect the primary near-term catalyst to be expected
maintenance price increases, which take effect beginning in June, and drive accelerated
adoption of new model subscriptions as customers take advantage of loyalty
subscription discounts. With higher pricing on the maintenance base, we expect ARPS to
trend upwards and return to positive YoY growth in 2HFY18. Lastly, with the resignation
of CEO Carl Bass in February, we expect a relatively smooth management transition
with the new CEO likely sourced from within the company on or before the June
shareholder meeting.
6
Macro Sensitivity Analysis
What Happens in a Mild Recession?
In our "macro adjusted" scenario, we include the risk of a mild recession in FY19 (CY18),
which pushes out management's FY20 goal posts by two years. Historically, Autodesk
faced economic recessions in FY03 and FY10, with the former being a less severe
downturn and the more likely scenario, in our view. In FY03, license revenues declined
17% YoY, while management cut expenses by 3% and in the following year license
revenues rebounded by 12%. In our "macro adjusted" model, our forecasts for FY19 and
FY20 assume a mild recession similar to the one Autodesk saw in FY03, as gross
subscription adds decline by 20% in FY19 before rebounding to 40% growth in the
following year. This results in our FY20 FCF/share moving to $3.95 from $4.94 in our
base case (mgmt. target at $6+/share) and FY23 FCF/share to $7.40 from $9.21 (mgmt.
target at $11/share). Applying a 20x EV/FCF multiple to FCF/share of $7.40 in FY23 and
12.5% discount rate, we arrive at $93/share under mild recession, which is still ~4% above
today's levels even with FY23 FCF/share estimate being 33% below management's target.
Exhibit 4: In Case of a Mild Recession in FY19 (CY18) We Could Still See Upside as Model Transition
Unfolds
Base Case FY23 Model
Mild Recession Scenario
Bull Case FY23 Model
Bear Case FY23 Model
FY23 Subscription Base (M)
FY23 FCF/Share
FY23 Revenue ($M)
FY23 % Recurring Revenue
FY23 OM% margin
FCF FY16-23 CAGR
EV/FCF Multiple
Implied NTM PT
Upside / (Downside) %
Source: Morgan Stanley research
7,362
$9.21
$4,720
93%
40%
14%
20x
$115
29%
6,725
$7.40
$4,375
93%
35%
12%
20x
$93
4%
7,895
$11.26
$4,988
94%
44%
16%
20x
$141
58%
5,832
$6.01
$3,951
92%
34%
9%
17x
$64
(28%)
Lower Earnings Volatility from Subscription
One of the main benefits of Autodesk's transition to a subscription model is lower
earnings volatility - which is also an important factor why recurring revenue models
carry premium valuation vs traditional license/maintenance (we dig further into this in
the next section). Using the mild recession scenario outlined above, we see a meaningful
difference in the EPS growth profile under the subscription model vs the legacy
Autodesk. In a similar exercise for a more severe macro shock, during the '08/'09
recession Autodesk's license revenues dropped 39% YoY and EPS fell ~50% YoY. If
gross subscription adds saw a similar 40% decline in FY20 (as the subscription transition
enters a more mature phase), our EPS estimate only falls by 11%.
7
Exhibit 5: EPS Volatility is Reduced in a Subscription Model - One of the Key Benefits of a Recurring
Business
YoY Change:
License
FY03
FY10
FY19e Mild Recession
FY20e Severe Recession
Source: Company Data, Morgan Stanley Research
-17%
-39%
EPS
-62%
-49%
Subscriptions
EPS Delta vs No
Recession
-20%
-40%
-18%
-11%
8
What Do We Pay for It?
Valuation: Our ADSK transition valuation is based on discounting FY23 FCF/share to a
base case 12-month target. Our base case is based on 20x EV/FCF, a slight premium
versus the 17.2x average that Autodesk traded during the last mid-cycle expansion
period in U.S. (2003-07), see Exhibit 6 below. We feel that a slight premium is warranted,
considering the higher value of recurring revenue streams post transition versus the less
durable perpetual license revenues that historically made up the bulk of Autodesk
revenues. We would also note, 20x represents a slight discount to the peer group
average at ~22x EV/CY18 FCF (Exhibit 8). In our bull case, we apply the same 20x EV/FCF
multiple to ADSK, but assume management achieves their targeted FY23 FCF/share of
$11, yielding our bull case price target of $141 and ~60% upside from current levels.
Exhibit 6: During the Most Recent Mid-Cycle Economic Expansion (2003-2007), ADSK Traded at an
Average 17.2x EV/NTM FCF
ADSK Mid-Cycle EV/ NTM FCF, CY03-CY07
30x
25x
20x
15x
10x
5x
0x
Source: Company Data, Morgan Stanley Research, Thomson Reuters
ADSK
Average EV/NTM FCF, CY03-CY07 = 17.2x
9
Exhibit 7: ADSK Peers Traded at an 15x EV/NTM FCF During the Same Mid-Cycle Expansion
Period, With the High-End Peers (ADBE) at 20x and Low-End (CDNS) at 10x
30x
25x
20x
15x
10x
5x
0x
Peer Group Mid-Cycle EV/ NTM FCF, CY03-CY07
High-End Avg EV/NTM FCF (ADBE) = 20.1x
Peer Average EV/NTM FCF, CY03-CY07 = 15.3x
Low-End Avg EV/NTM FCF (CDNS) = 9.7x
Source: Company Data, Morgan Stanley Research, Thomson Reuters
ADSK
ADBE
CDNS
DSY
PTC
SNPS
Exhibit 8: Our Applied 20x FCF Multiple Remains at a Discount to Peer Average at ~22x Based on
EV/CY18 FCF
Company
Based on Calendar Year-End
Adobe
Dassault
Synopsys
Cadence Systems
ANSYS
Average
Median
Price
4/28/2017
Shares
Out.
Market
Cap.
Ent.
Value
$133.38
$81.93
$73.66
$32.04
$110.15
500.9
270.4
150.5
278.8
87.8
$66,805
$22,150
$11,086
$8,932
$9,672
$64,039
$20,720
$10,439
$9,078
$8,850
FCF
2018E
$2,777
$832
$616
$432
$395
2017E
$2,347
$731
$519
$401
$368
% FCF CAGR
2019E
16-'18E
17-'19E
2017E
EV/FCF
2018E
2019E
EV/FCF/Growth
2018E
2019E
Operating Margin
2017E 2018E 2019E
$3,405
$905
$677
$480
$494
17%
18%
4%
8%
8%
11%
8%
20%
11%
14%
9%
16%
14%
14%
27.3x
28.4x
20.1x
22.6x
24.0x
24.5x
24.0x
23.1x
24.9x
17.0x
21.0x
22.4x
21.7x
22.4x
18.8x
22.9x
15.4x
18.9x
17.9x
18.8x
18.8x
1.38x
1.42x
4.37x
2.78x
2.86x
2.56x
2.78x
0.92x
2.03x
1.09x
2.03x
1.13x
1.44x
1.13x
-4%
-3%
-13% -9%
8%
8%
-3%
-3%
-16% -15%
1%
-1%
9%
0%
-9%
-5.9% -4.3% 0.1%
-4.4% -3.5% 0.2%
Source: Company Data, Morgan Stanley Research, Thomson Reuters
10
Model Restructuring
Our Base Case Estimates Remain Below Management Targets: After Autodesk's Analyst
Day and additional detail provided on converting the existing maintenance base to
subscription, we took time to dig into the updated metrics and drivers through FY20 and
beyond. While company's long-term targets haven't changed meaningfully over the past
year, our analysis indicated that even if management's goals are not achieved, there
could still be upside to ADSK's stock. Specifically, we are encouraged by the levers that
could drive this model transition that are fully within management's control –
maintenance price increases, expense structure focus and capital returns – making the
path to $6 FCF per share in FY20 appear smoother. Our base case estimates point to
FCF per share of $4.94 in FY20 and $9.21 in FY23, below management's targeted $6 per
share in FY20 and $11 in FY23. The delta between our estimates vs. management is
primarily driven by assumptions around operating margin, number of subscriptions and
total revenue/billings by FY20 (see Exhibit 9). Below we dig into the details of our
revised model and underlying assumptions: 1) Building the Subscription Base; 2) Pricing /
ARPS (Average Revenue Per Subscription) and 3) Operating Margin and FCF.
Exhibit 9: Our Base Case Estimates Remain Below Management's FY20 Targets
FY16-20 ARR CAGR
FY16-20 ARPS CAGR
FY16-20 Subscriptions CAGR
FY20 FCF (M)
FY20 FCF/Share
FY20 Revenue (M)
FY20 % Recurring Revenue
FY20 OM% margin
Source: Morgan Stanley Research, Company Data
MS Base Case FY20 Model
24%
4%
19%
$1,033
$4.94
$3,065
88%
27%
Mgmt Goals by FY20
24.0%
3%
20%
$1,400
$6.00+
$3,500
>90%
32-34%
1. Building the Subscription Base:
Gross Subscription Adds: Our model starts with gross adds of new subscriptions to the
installed base. Historically, Autodesk has added between 500-800K seats per year on a
gross basis, but this was prior to the ramp in adoption of their Cloud360 offerings. As
the current pool of 2.2M of active maintenance subscribers is converted, we see
potential for attach of additional Cloud subscriptions, such as Fusion 360 and BIM 360
alongside the desktop-based software. In addition, we see Autodesk's push to the Cloud
democratizing these products and bringing them into markets that could previously not
afford them (reducing piracy) or brand new markets (millions of workers in construction
and manufacturing). We model gross sub adds of 870K in FY18, 991K in FY19 and 1.1M in
FY20. This is driven by Cloud and EBA (enterprise business agreement) subscriptions
ramping from 6% of the installed base in FY17 to approximately 25% of the subscription
base by FY20 (15% Cloud and 10% EBAs). Excluding cloud-based subscriptions, we see
gross sub adds between 700-800K per year through FY20, which is at the high-end of
the historical average range.
11
Exhibit 10: While Gross Adds Ramp to >1M in FY20-FY23, Non-Cloud Gross Subscription Adds
Remain Within Historical Ranges
Gross Additions (Subscriptions in K)
1,400
1,200
1,000
800
600
400
200
-
13
638
596
53
130
248
385
437
469
486
706
739
744
715
713
704
699
FY15
FY16
FY17
FY18e
FY19e
FY20e
FY21e
FY22e
FY23e
Gross Sub Adds (ex. Cloud)
Cloud Subs
Source: Morgan Stanley Research Estimates
Exhibit 11: We Estimate Cloud Subs to Ramp from 3% of the Base in FY16 to 15% in FY20 and
~24% in FY23, While Maintenance Subs Are Close to Zero By FY20
% of Subscription Base
Desktop Subs
Maintenance Subs
Cloud Subs
EBA (Enterprise Subs)
FY17 (Current)
27%
67%
3%
3%
FY20
74%
1%
15%
10%
FY23
65%
0%
24%
11%
Source: Morgan Stanley Research Estimates, Company Data
Conversions Among the Base: To accelerate the shift from maintenance to new model
subscriptions, management announced plans to roll out higher pricing on the legacy
maintenance base, with increases planned to take effect beginning in FY18 thru FY20
(Exhibit 13). Maintenance customers will have the option to either bear the increased
maintenance costs thru the three-year cycle or switch earlier to a subscription at a lower
locked-in discounted loyalty rate for three years. This is expected to drive maintenance
subscriptions close to zero by FY20, as conversions begin to ramp in the 2HFY18. Among
the ~2M maintenance customers ending FY17, we expect 30-35% to convert to desktop
subscriptions in FY18 and FY19, to take advantage of early loyalty discounts and avoid
compounding maintenance price increases, while 20-25% convert in FY20 and the
remaining ~10% are lost due to attrition.
Net, we model ~19.1% CAGR in total subscriptions from FY16-FY20, which yields ~5.2M
subscriptions in FY20 vs. management guidance of 20% CAGR and 5.4M subscriptions.
Our forecast assumes that the majority of the estimated 2.2M active non-subscribers
adopt desktop subscription and adjacent cloud-based offerings, adding to the base of
~3.1M subscriptions ending FY17. We expect slower subscription growth at ~12% CAGR
from FY20-FY23 with total subscriptions reaching ~7.4M by FY23, as loyalty discounts
on desktop subscription roll off and the maintenance base fully converts to
subscription.
Exhibit 12: Net New Subscriptions Become More Meaningful to the Overall Base in FY20 and
Beyond, as Maintenance Conversions Have Fully Taken Place
Subscriptions in 000s
Existing / Converted Subscription Base
% of Total
Net New Subscriptions
% of Total
Total Subscription Base
FY16
2,162
84%
423
16%
2,584
FY17
2,117
68%
996
32%
3,113
FY18e
2,012
54%
1,731
46%
3,742
FY19e
1,944
44%
2,491
56%
4,435
FY20e
1,893
36%
3,311
64%
5,204
FY21e
1,889
32%
4,096
68%
5,985
FY22e
1,889
28%
4,818
72%
6,708
FY23e
1,889
26%
5,473
74%
7,362
Source: Morgan Stanley Research Estimates, Company Data
12
2. Pricing / ARPS (Average Revenue Per Subscription)
Driving Higher Pricing on the Maintenance Base: Beginning in June 2017, maintenance
customers will have the option to trade in their perpetual license for product
subscription at a 60% loyalty discount vs cost of a new product sub, which is locked in
for three years. This discount will decrease by 5% in the following two years, which
incentivizes an earlier shift to subscription. Assuming the customer remains on
traditional maintenance, a 5% pricing increase applied in FY18 steps up to 10% in FY19
and 20% in FY20. While management reiterated their targeted 3% ARPS CAGR thru
FY20 at Analyst Day, we believe pushing the maintenance base to a higher price point
could be a nice tailwind to this metric.
We model 4.2% CAGR in ARPS from FY16-FY20 and 2.7% CAGR through FY23, which
is above management's targeted 3% APRS CAGR from FY16-FY20. We expect ARPS to
decline thru 1HFY18, but trend up in 2HFY18 as maintenance price increases take effect
in July. We could see potential upside to our ARPS estimates, as the company enables a
growing share of its business to be driven directly (allowing Autodesk to keep more of
the end user revenue). Net, our model looks for ARR CAGR of 24% from FY16-FY20
and 19% through FY23, inline with management's targeted ARR CAGR from FY16-FY20.
Exhibit 13: Annual Maintenance Price Increases Take Effect in June FY18 to Facilitate Shift to New
Model Subscriptions
Source: Autodesk 2016 Investor Day Presentation
3. Bringing it to the Bottom Line: Operating Margin & FCF
Operating Margin: Management has demonstrated a sharper focus on cost control over
the past year with commitment to keep expenses flat in FY18 and FY19. However, as we
move beyond the transition in FY20, we believe lack of incremental investment could
hamper the company's ability to drive subscription growth and expand within new target
markets. During its 2016 Analyst Day, management also spoke of significant investments
in the business to 1) drive more value for subscription customers – including more R&D
spend and broader customer support capabilities and 2) enable a growing share of
business to be driven directly. Our model looks for operating margin of 27.4% in FY20
and 40% by FY23. Our FY20 estimate is inline with Autodesk's peak op margins in FY08
but below management's FY20 guidance of 32-34%, given the company's plan to
13
increase investments in direct sales and support capabilities without discretely
identifying cost cuts to fund these investment.
Free Cash Flow: On Analyst Day, CFO Scott Herren bridged the FY20 target for net
income ($800M with 32-34% op margins) to the targeted $1.4B in FCF. One of the main
drivers of the bridge was a $600M YoY working capital benefit from deferred revenue,
which remains well above our current estimate of $467M. Absent changes in invoice
duration, the increase in deferred revenue should be a function of billings growth in the
model – a $600M deferred revenue increase YoY represents 15% of billings and implies
~40% billings growth in FY20, based on our estimates. For reference, high-growth
software names including CRM, WDAY and NOW have seen deferred revenue increases
at an average ~16% of total billings over the past three years, while sustaining over 40%
billings growth on average. Our estimate for YoY deferred revenue increase of +$467M
implies 27% billings growth in FY20 and accounts for 13% of billings during the year. Net,
we model FCF of $1.03B in FY20 and $1.84B in FY23, below management's targeted
FCF of $1.4B in FY20 and $2.4B in FY23.
Exhibit 14: Our FY20 Net Income to FCF Brige Implies A Less Meaningful Ramp In Deferred
Revenue vs. Management's Targeted +$600M
Taxes,
depreciation &
other
Change in
Deferred
Revenue
Change in A/R
CapEx
$467
($139)
($72)
$175
$603
MS FY20 Net
Income
Source: Morgan Stanley Research
$1,033
MS FY20 FCF
Share Count: With unrestricted access to ~$1.7B in cash formerly held overseas and
ongoing focus on capital return to shareholders, we see potential for accelerated share
repurchases through FY20. Coupled with our estimate for >$1.6B in cumulative FCF
generated from FY18-FY20, we see plenty of room for an accelerated share buyback to
more than offset 5-6M of annual share dilution from management stock comp plans.
Assuming the price at which shares are repurchased increases by the cost of capital
(12.5%) and 80% of future FCF generation redeployed to shareholders, we estimate an
average ~2% net decline in share count annually from 224M in FY17 to 209M in FY20,
well below the 225M basic shares assumed in management's targeted $6+ FCF/share.
14
Exhibit 15: ADSK: Long Term Model Transition Changes
New Subs Adds
Old Subs Adds
% Change
Guidance
New Billings
YoY Growth
Old Billings
YoY Growth
% Change
ARR
YoY Growth
Old ARR
YoY Growth
% Change
Guidance
ARPS
YoY Growth
Old ARPS
YoY Growth
% Change
New Total Revenue
YoY Growth
Old Total Revenue
YoY Growth
% Change
Guidance
New Op Margin
Old Op Margin
% Change
Guidance
New FCF
YoY Growth
Old FCF
YoY Growth
% Change
New FCF/share
Old FCF/share
% Change
FY17
529
529
0.0%
$2,299
-19.8%
$2,299
-19.8%
0.0%
$1,604
17%
$1,604
16.5%
0.0%
$515
-3.3%
$515
-3.3%
0.0%
$2,031
-18.4%
$2,031
-18.4%
0.0%
-6.2%
-6.2%
0.0%
FY18E
630
595
5.9%
600-650
$2,214
-3.7%
$2,407
9.1%
-8.0%
$2,001
25%
$2,110
38.1%
-5.2%
24-26% YoY
$535
3.8%
$571
15.9%
-6.4%
$2,025
-0.3%
$2,145
6.2%
-5.6%
2000-2050
-6.5%
-1.1%
-5.4%
(8)-(5)%
FY19E
692
683
1.3%
FY20E
770
789
-2.4%
FY21E
781
676
FY22E
723
645
15.4% 12.1%
FY23E
655
$2,790
26.0%
$2,986
24%
-6.5%
$2,556
28%
$2,645
25%
-3.4%
$576
7.8%
$604
5.8%
-4.6%
$2,452
21.1%
$2,745
28%
-10.6%
$3,532
26.6%
$3,612
21%
-2.2%
$3,275
28%
$3,222
22%
1.6%
$629
9.2%
$624
3.2%
0.9%
$3,065
25.0%
$3,332
21%
-8.0%
$4,070
15.2%
$4,123
14%
-1.3%
$3,792
16%
$3,676
14%
3.2%
$634
0.7%
$629
0.9%
0.7%
$3,699
20.7%
$3,896
17%
-5.0%
$4,560
12.0%
$4,558
11%
0%
$4,265
12%
$4,088
11%
4.3%
$636
0.3%
$630
0.2%
0.9%
$4,229
14.3%
$4,351
12%
-2.8%
$5,053
10.8%
$4,740
11%
$644
1.3%
$4,720
11.6%
11.9%
21.1%
-9.2%
38.0%
35.0%
27.4%
34.3% 43.3% 48.7%
-8.2% -10.7%
-6.9%
40.0%
$86
-9%
$291
$94
-72%
$94
$1,598
17%
$1,905
-72.5% 113.1% 133.1% 77.7% 30.9% 20.8%
-70.4% -18.5% -14.2% -13.6% -16.1%
0.0%
$1,362
32%
$1,576
$1,033
87%
$1,204
$553
542%
$678
$1,840
15%
$0.42
$0.42
0.0%
$2.55
$0.39
$3.03
$1.30
-70.1% -15.9%
$4.94
$5.39
-8.4%
$6.71
$7.06
-5.0%
$7.93
$8.53
-7.0%
$9.21
Source: Company data, Morgan Stanley Research
15
Financials
Exhibit 16: Income Statement
($ Millions, Except Per-Share Data)
FY13
FY14
FY15
FY16
4/16
7/16
10/16
1/17
FY17
4/17e
7/17e
10/17e
1/18e
FY18e
FY19e
FY20e
2017
2018e
License & Other
Y.Y
Q.Q
Subscription
Y.Y
Q.Q
Total Revenue
Y.Y
Q.Q
Cost of Revenue
License & Other Revenues
License Margin
Subscription
Subscription Margin
Total Cost of Revenues
Gross Income
Gross Margin
Operating Expenses
S&M
R&D
G&A
Stock Option Expense (FV)
Special Charges
1364
0.5%
-
948
10.5%
-
2313
4.4%
-
153.3
89%
40.4
96%
193.7
2118.9
92%
812
539
182
156
124
1341
1227
1255
6.9% -8.5%
-8.0%
-
-
-
1277
1171
1019
9.1%
7.5% 14.9%
-
-
-
2274
2504
2512
-1.7% 10.5% -0.3%
-
-
-
156
170
186
229
741
-43.1% -21.3% -39.4% -52.5% -39.6%
-
-43.5% 23.0% -25.6% -8.1%
1290
323
1.0%
0.9%
-
0.9%
2031
479
-20.8% -9.6% -18.4% -26.1% -18.9%
-
7.6% -11.1% -2.2%
-21.0%
320
322
326
1.9%
0.2%
0.9%
2.0% -1.2% -0.8%
490
551
512
134.8
89%
89.3
91%
224.1
2049.8
90%
155.3
88%
124.7
89%
280.0
2232.2
89%
162.4
87%
147.5
88%
309.9
2194.2
88%
784
567
188
131
94
926
669
255
166
96
930
720
264
197
82
40
78%
38
88%
78.1
433.8
85%
219
175
67
57
71
35
85%
36
89%
71.0
479.7
87%
220
173
61
54
35
34
80%
33
90%
67.6
422.0
86%
231
172
62
57
20
35
78%
36
89%
71.1
407.7
85%
259
166
65
59
26
144.2
81%
143.6
89%
287.8
1743.2
86%
928
685
256
227
152
149
160
-20.0% -30.0%
7.6%
-4.8%
330
322
2.5%
-1.2%
2.4%
-0.1%
490
471
-8.0% -11.0%
4.1%
-1.7%
30
80%
30
91%
60.0
410.9
87%
244
168
62
64
20
32
80%
31
91%
63.0
427.1
87%
245
169
59
64
11
950
184
170
1384
663
0.0% 18.0% -10.5% 43.2% 45.8%
-
8.4%
6.3%
-
-
1680
369
341
1502
1362
5.6% 10.3% 11.8%
6.7% 14.4%
-
-
8.2%
3.3%
511
3065
2025
553
4.3% 15.6% -0.3% 21.1% 25.0%
-
4.3%
-
2452
8.3%
-
-
34
80%
32
91%
66.0
444.9
87%
241
170
59
64
9
37
80%
34
91%
71.5
481.8
87%
252
172
56
64
9
134.4
80%
126.0
91%
260.5
1764.6
87%
173.5
82%
109.0
93%
282.5
2169.7
88%
225.2
84%
121.9
93%
347.1
2717.7
89%
981
679
236
257
50
929
710
239
262
37
971
657
248
262
37
Excluding Stock Option Expense and Special Charges
Total Operating Expenses
1532.3
1539.3
1849.8
1913.5
460.8
453.8
464.9
489.2
1868.7
473.3
473.4
470.0
479.6
1896.3
1878.7
1875.8
Total Expense
Y.Y.
Q.Q.
Operating income
Operating margin
incremental margin
Interest and Other Income
Income Before Taxes
Income Tax Expense
Tax Rate
Net Income
EPS (Diluted) - Operating
Y.Y
EPS (Basic) - Operating
2223
4.4%
1763
2%
1726
3%
2130
21%
-25%
510.5
280.7
382.4
586.6
25.4%
22.5% 15.2% 11.2%
54.8% 196.6% -53.8% 1256%
-26.5
255.4
61.3
24%
194.1
9.2
595.8
145.8
24%
450.0
-14.4
368.0
95.7
26%
272.3
-3.1
507.4
121.8
24%
385.6
539
-2%
533
-2%
1.5%
-42.9
560
2157
-4% -3.0%
5.2%
-81.5
525
-4%
-7.4% -2.6%
25.9
-27.0
-125.5
-5.3%
4.7% -8.8% -17.0% -6.2%
90.0% 66.8% 88.9% 87.2% 85.9%
-24.5
-150.0
-39.0
26%
-111.0
-0.8
-82.3
-21.4
26%
-60.9
-4.1
-31.1
-8.1
26%
-23.0
-9.8
-52.7
-13.7
26%
-39.0
-9.8
16.1
4.2
26%
11.9
1.94
12%
1.99
1.68
-13%
1.72
1.17
-30%
1.20
0.84
-28%
0.86
-0.10
-134%
-0.10
-0.18
0.05
-0.50
-72% -221% -232% -159%
-0.50
0.05
-0.28
-0.28
-0.18
-131.7
536
2%
2223
2.9%
2161
0.2%
2157
0.0%
551
-2%
2.8%
2.2
533
-1%
-4.8%
-62.4
536
1%
0.6% -0.1%
841.9
-46.3
-25.2
-13.3% -9.5% -4.9%
0.4% -6.5% 11.9% 27.5%
86.2% 119.1% 83.3% 112.4% 104% 99.0% 89.9%
-25.0
-10.9
816.9
-8.7
212.4
-2.3
26%
26%
604.5
-6.4
-43.7
-175.4
-45.6
26%
-129.8
-25.0
266.0
69.2
26%
196.9
-10.9
-73.3
-19.1
26%
-54.2
-10.9
-57.3
-14.9
26%
-42.4
-10.9
-36.1
-9.4
26%
-26.7
291.1
-0.25
-0.19
141% -463%
-0.19
-0.25
-0.12
-30%
-0.12
-0.03
-89%
-0.03
-0.59
2.89
0.91
19% -254% 216%
2.87
0.91
-0.59
Source: Company data, Morgan Stanley Research
Exhibit 17: Balance Sheet
($ Millions, Except Per-Share Data)
2017
FY13
FY14
FY15
FY16
4/16
7/16
10/16
1/17
FY17
4/17e
7/17e 10/17e
Assets
Cash and Equivalents
Marketable Securities
Accounts Receivable, Net
Inventories
Deferred Income Taxes
Income Taxes Receivable
Prepaid Expenses and Other Current Assets
Total Current Assets
Marketable Securities
PP&E
Purchased Tech and Capitalized SW, Net
Goodwill
Deferred Income Taxes, Net
Other
Total Assets
Liabilities
Accounts Payable
Accrued Compensation
Accrued Income Taxes
Deferred Revenue
Litigation Accrual
Borrowings Under LOC
Other Accrued Liabilities
Total Current Liabilities
Deferred Income Taxes
Deferred Revenues
Litigation Accrual
Other Liabilities
Long-Term Notes Payable
Minority Interest
Total Liabilities
Common Stock & Additional Paid In Capital
Accumulated and Other Comprehensive Loss
Deferred Compensation
Retained Earnings
Total Stockholder's Equity
1612
342
495
0
42
0
61
2552
411
115
76
872
123
160
4308
94
190
14
647
0
0
99
1044
0
188
0
288
746
0
2265
1450
-6
0
599
2043
1853
414
424
0
57
0
87
2835
277
130
63
1010
131
148
4595
85
181
24
696
0
0
85
1072
0
204
0
311
746
0
2334
1637
-1
0
625
2262
1411
616
459
0
85
0
101
2671
273
159
87
1456
100
168
4914
101
253
28
901
0
0
117
1400
0
256
0
291
747
0
2695
1773
-53
0
499
2219
1353
898
654
0
0
0
89
2993
532
169
71
1535
9
206
5515
120
243
29
1069
0
0
130
1591
63
450
0
299
1488
0
3891
1822
-121
0
-76
1624
1223
1044
256
0
0
0
105
2629
539
175
70
1581
10
203
5206
107
133
25
1092
0
0
118
1475
78
432
0
297
1488
0
3770
1866
-122
0
-308
1436
1467
598
307
0
0
0
115
2487
506
173
67
1597
10
209
5047
110
160
54
1107
0
0
128
1560
67
413
0
187
1489
0
3716
1857
-130
0
-396
1332
1437
532
260
0
0
0
103
2332
455
168
54
1557
50
213
4829
103
188
86
1099
0
0
122
1598
76
434
0
171
1490
0
3769
1883
-188
0
-635
1061
1213
687
452
0
0
0
110
2462
306
159
46
1561
62
202
4798
94
238
47
1283
0
399
135
2195
92
505
0
178
1092
0
4061
1876
-179
0
-961
737
1213
687
452
0
0
0
110
2462
306
159
46
1561
62
202
4798
94
238
47
1283
0
399
135
2195
92
505
0
178
1092
0
4061
1876
-179
0
-961
737
1145
687
239
0
0
0
113
2184
306
174
56
1561
62
130
4474
89
122
47
1280
0
399
169
2106
92
504
0
178
1092
0
3972
1775
-136
0
-1136
503
908
687
277
0
0
0
114
1986
306
176
55
1561
62
135
4282
101
142
47
1326
0
399
171
2187
92
522
0
178
1092
0
4070
1620
-125
0
-1284
212
692
687
246
0
0
0
114
1740
306
181
54
1561
62
150
4054
89
196
47
1289
0
399
172
2191
92
508
0
178
1092
0
4060
1515
-115
0
-1405
-5
2018e
1/18e
547
687
493
0
0
0
118
1844
306
183
53
1561
62
161
4171
104
275
47
1419
0
0
233
2078
92
559
0
178
1092
0
3998
1377
293
0
-1497
173
FY18e
FY19e
FY20e
547
687
493
0
0
0
118
1844
306
183
53
1561
62
161
4171
104
275
47
1419
0
0
233
2078
92
559
0
178
1092
0
3998
1377
293
0
-1497
173
359
687
524
0
0
0
117
1687
306
214
48
1561
62
170
4049
135
339
47
1661
0
0
169
2352
92
654
0
178
1092
0
4367
896
330
0
-1543
-318
667
687
676
0
0
0
136
2165
306
246
44
1561
62
152
4536
110
363
47
1997
0
0
113
2629
92
786
0
178
1092
0
4777
429
367
0
-1036
-241
Total Liabs & Stockholder's Equity
4308
4595
4914
5515
5206
5047
4829
4798
4798
4474
4282
4054
4171
4171
4049
4536
Source: Company data, Morgan Stanley Research
16
Exhibit 18: Quarterly Cash Flow Statement
($ Millions, Except Per-Share Data)
Operating Activities:
Net income (loss)
FY14
FY15
FY16
4/16
7/16
2017
10/16
1/17
FY17
4/17e
7/17e 10/17e
1/18e FY18e FY19e FY20e
2018e
229
82
-326
-173
-93
-143
-171
-579
-175
-147
-122
-91
-535
-46
507
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-Based Compensation Expense
Tax benefits from employee stock plans
Restructuring Related Charges, Net
Charge for acquired IPR&D
Write-down of purchased technology
Other operating activities
129
132
-9
13
0
0
-16
146
166
-1
3
0
0
16
Changes in operating assets and liabilities and other
Net Cash Provided by (used in) Operating Activities
86
564
296
708
146
197
0
0
0
0
-25
422
414
Cash Flows From Investing Activities
Net sales and maturities of available-for-sale marketable securities65
Capital and other expenditures
-64
Purchases of software technologies, capitalization of software costs0
Business combinations, net of cash acquired
Other investing activities
Net Cash Used in Investing Activities
-176
-19
-194
Cash Flows From Financing Activities
Proceeds from issuance of common stock, net of issuance costs288
Repurchases of common stock
-424
Tax benefits from employee stock plans
9
0
Repayments on borrowings
-127
Net Cash Provided by Financing Activities
Exchange Rate Impact
-2
Change in Cash and Cash Equivalents
Cash, Beginning of Period
Cash, end of period
FCF
Source: Company data, Morgan Stanley Research
-196
-76
0
-630
-4
-906
135
-372
1
-3
-240
-5
-442
1853
1411
-544
-72
0
-149
-45
-810
111
-510
0
742
343
-5
-58
1411
1353
241
1612
1853
499
633
342
37
57
6
52
0
0
8
176
164
-147
-22
0
-60
-1
-230
51
-118
0
0
-67
3
-130
1353
1223
142
33
49
-15
16
0
0
-15
7
-18
482
-20
0
-26
-6
431
3
-152
-20
0
-169
0
244
1353
1467
34
57
-30
3
0
0
10
77
8
116
-23
0
0
-8
85
48
-128
-39
0
-119
-5
-31
1353
1437
35
59
40
9
0
0
-11
55
16
-4
-11
0
0
1
-14
17
-300
59
0
-224
-1
-223
1353
1213
139
222
0
81
0
0
-8
315
170
447
-76
0
-85
-14
272
120
-698
0
0
-578
-3
-140
1353
1213
-38
-15
5
94
25
64
0
10
0
0
0
192
116
0
-19
1
0
0
-18
56
-222
0
0
-166
0
-68
1213
1145
97
24
64
0
2
0
0
0
54
-3
0
-17
1
0
0
-16
3
-222
0
0
-219
0
-237
1213
908
-20
24
64
0
0
0
0
0
5
-28
0
-20
1
0
0
-19
53
-222
0
0
-169
0
-216
1213
692
-48
24
64
0
0
0
0
0
76
73
0
-16
1
0
0
-15
19
-222
0
0
-203
0
-145
1213
547
97
257
0
12
0
0
0
328
158
0
-72
4
0
0
-67
132
-888
0
0
-756
0
-666
1213
547
57
86
77
262
0
0
0
0
0
329
622
0
-71
4
0
0
-67
145
-888
0
0
-743
0
-188
547
359
551
77
262
0
0
0
0
0
258
1105
0
-72
4
0
0
-68
159
-888
0
0
-729
0
308
359
667
1033
17
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Holdings, Inc., Travelport Worldwide Limited, Workiva Inc.
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Akamai Technologies, Inc., Ansys Inc., AppFolio Inc, Atlassian Corporation PLC, Autodesk, Barracuda Networks Inc, Bazaarvoice Inc, Box Inc, Cadence
Design Systems Inc., CDK Global Inc, Check Point Software Technologies Ltd., Citrix Systems Inc, Coupa Software Inc, CyberArk Software Ltd, Dassault
Systemes SA, Descartes Systems Group Inc, Ellie Mae Inc, Endurance International Group Holdings, Inc., FireEye Inc, Five9 Inc, Fortinet Inc., GoDaddy Inc,
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Systems, Akamai Technologies, Inc., Autodesk, Cadence Design Systems Inc., Check Point Software Technologies Ltd., Fortinet Inc., Intuit, Microsoft,
Nuance Communications Inc., Oracle Corporation, Red Hat, Inc., Sabre Corp, Salesforce.com, SS&C Technologies Holdings, Inc., Symantec, Synopsys Inc.,
Tableau Software, Travelport Worldwide Limited, VMware Inc.
Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with,
the following company: 8x8 Inc, Adobe Systems, Akamai Technologies, Inc., Ansys Inc., AppFolio Inc, Atlassian Corporation PLC, Autodesk, Barracuda
Networks Inc, Bazaarvoice Inc, Box Inc, Cadence Design Systems Inc., CDK Global Inc, Check Point Software Technologies Ltd., Citrix Systems Inc, Coupa
Software Inc, CyberArk Software Ltd, Dassault Systemes SA, Descartes Systems Group Inc, Ellie Mae Inc, Endurance International Group Holdings, Inc.,
FireEye Inc, Five9 Inc, Fortinet Inc., GoDaddy Inc, HubSpot, Inc., Imperva Inc., Instructure Inc, Intuit, Jive Software Inc, Microsoft, MINDBODY INC, New Relic
Inc, Nuance Communications Inc., Oracle Corporation, Palo Alto Networks Inc, Proofpoint Inc, Qualys Inc, Rapid7 Inc, Red Hat, Inc., RingCentral Inc, Sabre
Corp, Salesforce.com, ServiceNow Inc, Shopify Inc, Splunk Inc, SS&C Technologies Holdings, Inc., Symantec, Synopsys Inc., Tableau Software, Travelport
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Symantec, Synopsys Inc., Tableau Software, Travelport Worldwide Limited, VMware Inc, Workday.
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18
are the subject of the debt research report.
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(as of April 30, 2017)
The Stock Ratings described below apply to Morgan Stanley's Fundamental Equity Research and do not apply to Debt Research produced by the Firm.
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COVERAGE UNIVERSE
INVESTMENT BANKING CLIENTS (IBC)
STOCK RATING
CATEGORY
COUNT
% OF
TOTAL
COUNT
% OF
TOTAL IBC
% OF
RATING
CATEGORY
OTHER MATERIAL
INVESTMENT SERVICES
CLIENTS (MISC)
COUNT
Overweight/Buy
Equal-weight/Hold
Not-Rated/Hold
Underweight/Sell
TOTAL
1167
1403
59
624
3,253
36%
43%
2%
19%
297
311
8
87
703
42%
44%
1%
12%
25%
22%
14%
14%
563
677
8
270
1518
% OF
TOTAL
OTHER
MISC
37%
45%
1%
18%
Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment
banking compensation in the last 12 months.
Analyst Stock Ratings
Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a
risk-adjusted basis, over the next 12-18 months.
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on a risk-adjusted basis, over the next 12-18 months.
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risk-adjusted basis, over the next 12-18 months.
Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.
Analyst Industry Views
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Other Important Disclosures
Morgan Stanley & Co. International PLC and its affiliates have a significant financial interest in the debt securities of Adobe Systems, Autodesk, Bazaarvoice
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19
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21
INDUSTRY COVERAGE: Software
COMPANY (TICKER)
Brian Essex, CFA
AppFolio Inc (APPF.O)
CDK Global Inc (CDK.O)
Descartes Systems Group Inc (DSGX.O)
Ellie Mae Inc (ELLI.N)
Endurance International Group Holdings, Inc. (EIGI.O)
GoDaddy Inc (GDDY.N)
Instructure Inc (INST.N)
MINDBODY INC (MB.O)
Q2 Holdings Inc (QTWO.N)
Sabre Corp (SABR.O)
Shopify Inc (SHOP.N)
SS&C Technologies Holdings, Inc. (SSNC.O)
Travelport Worldwide Limited (TVPT.N)
Keith Weiss, CFA
Adobe Systems (ADBE.O)
Akamai Technologies, Inc. (AKAM.O)
Autodesk (ADSK.O)
Check Point Software Technologies Ltd. (CHKP.O)
Citrix Systems Inc (CTXS.O)
Intuit (INTU.O)
Microsoft (MSFT.O)
Oracle Corporation (ORCL.N)
Palo Alto Networks Inc (PANW.N)
Red Hat, Inc. (RHT.N)
Salesforce.com (CRM.N)
ServiceNow Inc (NOW.N)
Symantec (SYMC.O)
VMware Inc (VMW.N)
Workday (WDAY.N)
Melissa Gorham
Barracuda Networks Inc (CUDA.N)
Box Inc (BOX.N)
CyberArk Software Ltd (CYBR.O)
FireEye Inc (FEYE.O)
Fortinet Inc. (FTNT.O)
Imperva Inc. (IMPV.O)
Proofpoint Inc (PFPT.O)
Qualys Inc (QLYS.O)
Rapid7 Inc (RPD.O)
Secureworks Corp (SCWX.O)
Splunk Inc (SPLK.O)
Varonis Systems, Inc. (VRNS.O)
Meta A Marshall
8x8 Inc (EGHT.O)
Five9 Inc (FIVN.O)
RingCentral Inc (RNG.N)
Sanjit K Singh
Atlassian Corporation PLC (TEAM.O)
New Relic Inc (NEWR.N)
Nuance Communications Inc. (NUAN.O)
Tableau Software (DATA.N)
Stan Zlotsky, CFA
Bazaarvoice Inc (BV.O)
Coupa Software Inc (COUP.O)
HubSpot, Inc. (HUBS.N)
Jive Software Inc (JIVE.O)
Veeva Systems Inc (VEEV.N)
Workiva Inc (WK.N)
Zendesk, Inc (ZEN.N)
RATING (AS OF)
PRICE* (04/28/2017)
E (05/13/2016)
E (02/03/2017)
E (11/25/2014)
E (01/12/2017)
U (02/21/2017)
O (05/11/2015)
E (12/08/2015)
E (09/28/2015)
E (07/22/2016)
E (04/06/2017)
E (09/28/2016)
O (09/27/2016)
E (01/23/2017)
E (09/10/2010)
U (04/27/2017)
O (05/01/2017)
E (04/18/2017)
U (01/19/2016)
U (09/13/2016)
O (01/13/2016)
E (11/11/2015)
E (03/01/2017)
E (07/07/2016)
O (05/23/2011)
O (09/18/2013)
O (08/15/2016)
O (07/25/2016)
E (11/06/2012)
E (01/08/2016)
E (02/17/2015)
E (03/30/2017)
E (10/15/2013)
O (11/15/2016)
U (04/21/2016)
O (09/10/2015)
O (03/30/2017)
E (08/11/2015)
O (05/17/2016)
O (10/06/2014)
U (09/10/2015)
E (04/11/2017)
E (04/11/2017)
O (04/11/2017)
E (01/04/2016)
O (09/10/2015)
E (05/01/2013)
E (02/08/2016)
E (09/02/2015)
E (10/31/2016)
O (09/10/2015)
U (09/10/2015)
O (04/02/2014)
E (01/23/2017)
O (09/10/2015)
$26.55
$65.01
$23.15
$101.76
$7.60
$38.92
$23.90
$28.35
$38.15
$23.41
$75.95
$36.74
$13.17
$133.74
$60.94
$90.07
$104.01
$80.94
$125.21
$68.46
$44.96
$108.41
$88.08
$86.12
$94.48
$31.63
$94.12
$87.40
$20.33
$17.24
$52.91
$12.51
$39.00
$44.45
$75.37
$38.40
$16.95
$8.65
$64.31
$31.40
$14.55
$18.25
$31.95
$34.48
$39.98
$17.89
$53.68
$4.70
$27.75
$67.05
$5.05
$53.62
$16.80
$28.75
Stock Ratings are subject to change. Please see latest research for each company.
* Historical prices are not split adjusted.
22
© 2017 Morgan Stanley
23