There has been a lot of rain over the past week and that is good for us here in the North Bay. Me, I came down with the flu. Boy does that suck. Anyway, here we are at the last of the earnings reports for this quarter. That of Autodesk.
Now the raw numbers are what they are they lost $0.04 per share on revenue of $648M. But to me that is not the headline here. Yeah the analysts liked the numbers, but to me the bigger issue was the length of the call and the detail provided.
Autodesk talked about the uncertainty of the stock market and the transition that they are going through. I have noted the changes that through the last couple of quarters. They wanted to be sure to provide detailed information to the analysts (and to us as potential shareholders as well). The stated reason was that the detail in the explanations would help all of us understand the transitions and rate the stock fairly. The former I agree with. The latter, I am still not sure about. As I have said in the past, it is very hard to link the company’s present to its past and its future. I will go through that in a bit of detail, as well as make sure I explain one comment that the CEO made. He was hopeful that revenue would come in lower than projected!
Okay, the CEO doesn’t want to lose customers. What he wants is customers to adopt a subscription model for Autodesk’s products. Let me use a more familiar example: Microsoft Office. You can buy Microsoft Office for $150 as a one time purchase. Or you can buy Office 365 for as little as $70. So, it takes Microsoft about 2 years to make its money back from you renting Office. In the mean time, you are paying either monthly or annually an amount less than $150. So from a revenue standpoint, you will end up paying less than the $150 in any year – so Microsoft’s revenue from you is lower today. But they are assured of more revenue if you rent for a longer term. Over the long term, the value to Microsoft of your revenue is much better. Because once you have been with them for more than 2 years, you have paid more than $150. On my computer, I use Office 2010. That means I have not bought a copy of Office for over 5 years. The software works fine and I have no reason to upgrade.
There is a smaller saving with the conversion to subscription sales. Online Services like Office 365 are always on a single version. So, Microsoft or Autodesk does not have to be concerned withe supporting and bug fixing multiple versions of the software. They can simply maintain and advance the most recent set of software. Now many companies don’t support 5 year old versions, but it was not that long ago that Microsoft quit supporting Windows XP. XP was released in 2001 and extended support did not end until 2012, over a decade later. Think about the number of people fixing bugs in a product for which Microsoft would not get any revenue. So, having a single version makes a lot of sense.
I strongly urge all of you to read the Autodesk Earnings Call Transcript. It was the most honest look at a business that I have heard on a call with some of the most detailed answers you will ever read. They did this to keep shareholders engaged and I applaud them for it. On the other hand, they may have set themselves up for problems a few years from now after they have pulled back in the depth of the answers. The call may surprise you and give you insight into how executives think about their business!
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